Industrial Production Dec 2024: Capacity Utilization

The manufacturing sector is steady ahead of many radical changes in supplier chain economics soon to arrive.

Jan 17, 2025

We see the heavier balance of metrics showing stronger sequential capacity utilization in Dec 2024 with total manufacturing higher, durables higher, nondurables higher, mining higher, and utilities higher.
Within durables, the strongest move was in Aerospace as that sector climbs out of the doldrums at levels still well below long term averages.
Autos eased on the month and the same for Machinery, but Fabricated Metals and Electrical Equipment ticked higher in a mixed picture within the durable lines.
Nondurables overall were higher led by the two largest lines of Chemicals and Food/Beverages.

The above chart updates long-term manufacturing capacity utilization. The current 76.6% is below the long-term median. We also include some other timeline medians and the current level is only ahead of the post-crisis expansion median (July 2009 to Jan 2020) to just before the start of COVID.

The above chart updates the high-level buckets in the Total Industry mix. The net trends across the categories on a simple “up-down” basis for Dec 2024 is favorable on balance in sequential context. When framed vs. long-term averages, the industrial mix is weak. We include MoM and YoY delta columns on the right. At the top line category level, the MoM delta story is favorable but not the YoY trends.

The ability to sustain high profits and solid margins in manufacturing sectors will get tested by tariffs and supplier chain economics and what that means for breakeven volumes. The performance will get tested by retaliation (volume and demand) and how exports might be undermined.

The strong dollar will not help exports although the UST currency policy seems to be “make sure the USD is the reserve currency while we slam trade partners with tariffs.” That has driven the stronger dollar. Then the policy spin is to project less inflation due to the stronger dollar (i.e., imports cheaper in dollar terms to mitigate tariffs) in one set of comments. Then they turn around and discuss the weaker dollar potential in a separate set of discussions while pretending that no nation can counter with competitive devaluations. The old “all other things being equal” caveat is alive and well. It is a great tradition in economic debates.

Many economists can debate 3 sides of a two-sided coin based on their assumptions, but the currency topic has been especially strange.

The above chart updates some of the largest durable and nondurable industry lines. We add columns on the right to detail the MoM and YoY deltas. The MoM deltas tell a mixed story by industry with aerospace volatile and one of the more erratic cap ute lines given Boeing’s myriad issues. The disruptions from strikes and other disruptions flow into the variances over time in areas such as autos and aerospace.

The above chart updates the long-term histories for expansions and recessions for frames of reference. The ability to generate profits and the relative scale of the profit margins gets tied back into pricing structure, volumes, product mix, and cost structures. In the new post-tariff and retaliation world, almost all of those moving parts will be up for grabs.

The above chart lines up the expansion and recession medians “by height” using manufacturing capacity utilization as the metric. We see the current cap ute level over on the left. The high rate of utilization in the 1970s tells a story of inefficient cost structures and high breakevens. The current cap ute rate benefits from a leaner cost structure that will be under scrutiny once the tariffs kick in.

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