MNI 5 THINGS: US December Industrial Production Seen Up 0.1%

     WASHINGTON (MNI) - The US industrial production report for December will be

released Friday and the outlook is for a 0.1% rise in industrial production.

Analysts are expecting a small decline to 78.4% in capacity utilization.

     Ahead of the release, we outline five themes for particular attention.

--UNCLEAR DIRECTIONAL RISK

     In December, analysts are expecting industrial production to rise by 0.1%

after a 0.6% increase in November. In the last ten years, their estimates have

been on target three times. They have missed seven times, with four

overestimates and three underestimates averaging 0.30pp and 0.27pp respectively.

Worth noting this month is the spread of analysts' forecasts for industrial

production. With forecasts ranging from a 0.5% decline to a 0.4% gain, there

seems to be some disagreement on expectations for this report. With such a wide

spread in forecasts and no obvious tendency to overestimate or underestimate,

there is a certain risk of a miss, but the direction is unclear.

--WIDE FORECAST SPREAD

     Analyst forecasts for December industrial production are particularly

spread out, with analysts calling for a 0.4% gain on the high end to a 0.5%

decline on the low end. While analysts appear to agree that an unseasonably warm

December had driven down utilities output, they differ on whether or not

manufacturing output grew at a sufficient pace to offset the losses sustained by

utilities, leading to the large spread in forecasts. Though both the mean and

median forecasts call for a 0.1% gain, the wide range of forecasts is worth

noting, as it lends weight to the possibility that the forecast could miss in

either direction.

--CAP-UTIL UPSIDE RISK

     Based on the last ten years, analysts have shown a tendency to

underestimate capacity utilization in the month of December. They have

underestimated six out of the last ten years by an average of 0.27pp. When

looking at only the last five years, there has been a slight shift toward

overestimates, but a large underestimate in December 2017 stands out. Analysts

could be on the low side again this month.

--LOWER ENERGY PRICES

     In December, energy prices took a significant downward turn. In December,

the Consumer Price Index for energy posted a 3.5% decline, following a 2.2%

decline in November. This window of lower energy prices may have been a positive

factor for industrial production in December, as falling energy input prices

will have enabled factories to operate for longer hours. Despite the volatility

of energy prices, this effect can be seen in a negative correlation between the

CPI for energy, and industrial production in data from the past two years.

--FACTORY HOURS UP

     Following a flat reading in November and a 0.1% decline in October,

manufacturing production is expected to partially rebound in December. The

employment data, released earlier this month, showed an increase in the factory

workweek to 40.9 hours from 40.8 hours in November. Since manufacturing

production tends to track well with weekly hours worked, this increase in hours

should be a positive sign for manufacturing production in December.

--MNI Washington Bureau; +1 202-371-2121; email: shikha.dave@marketnews.com

--MNI Washington Bureau; +1 (973) 494-2611; email: harrison.clarke@marketnews.com

--MNI Washington Bureau; tel: +1 202-371-2121; email: kevin.kastner@marketnews.com

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