The numbers: Industrial production surged 1.1% in February, the strongest gain since last October, the Federal Reserve reported Friday. The gain in output was well above Wall Street expectations of a 0.5% increase.
What happened: Manufacturing, construction and the energy sector had strong gains, more than offsetting a drop in utility output.
Manufacturing output jumped 1.2% in February, the biggest gain since October. Mining output rose 4.3%, helped by strong oil and gas extraction and coal mining. The index for oil and gas extraction was about 12% higher than a year ago and was at a record level.
Utility output slumped 4.7% on warmer-than-normal temperatures. Auto production rose 3.9% in February, after a 0.2% decline in the prior month. Excluding autos, manufacturing was up 1%. Output of construction equipment rose 2.3%
Capacity utilization jumped to 78.1% in February from 77.4% in the prior month. This is the highest level since January 2015.The capacity utilization rate reflects the limits to operating the nation’s factories, mines and utilities. It’s still below pre-recession levels, above 80%, that could fan production costs and prices.
Big picture: So far in the first quarter, the manufacturing sector is up at a 2.4% annual rate, following a 9.6% rise in the fourth quarter. Analysts believe manufacturing will continue to be a bright spot this year. The regional Empire State and Philly Fed indexes suggest continued strong activity in March. A self-inflicted trade war was seen as the main risk.
What are they saying?: “The manufacturing sector is likely to post its strongest year in recent memory on the back of a tax-cut-induced jump in capital spending…with robust readings likely for much of 2018,” said Stephen Stanley, chief economist at Amherst Pierpoint Securities.
Market reaction: Stocks DJIA, +1.67% opened higher after the factory data although speculation continued to swirl around the prospects of more departures from President Donald Trump’s White House, adding to the tone of political uncertainty in markets. Yields TMUBMUSD10Y, +0.45% on the 10-year Treasury were higher.
By GREG ROBB
