U.S. Industrial Production Sees Steady Growth
In February, U.S. industrial production increased for the fourth month in a row, as reported by the Federal Reserve on Monday. Both manufacturing and mining output saw gains for the second consecutive month, which was better than what many economists had predicted.
The headline figures might downplay the underlying strength of the data. Business equipment output rose for the fourth month straight, continuing a trend of robust capital investment, with a year-over-year increase of 6.4%. This stands as the highest yearly rise among the major sectors included in the report.
Additionally, separate figures released on Monday indicated that capital spending expectations among New York manufacturers are at their highest in over three years. The surge in capital investment is also evident in productivity metrics. Manufacturing productivity saw a 2.8% increase in the third quarter of 2025 and a 2.3% rise in the fourth quarter from the previous year. This marks the strongest consistent growth since before the 2008 financial crisis, aside from the post-recession recovery phase when productivity numbers are often skewed due to workforce changes. Earlier in 2023, manufacturing productivity was nearly 2% lower compared to the same time the year prior.
While factory employment has generally decreased over the past two years, the employment landscape is quite intricate. A study by the Federal Reserve Banks of Dallas and San Francisco revealed that net illegal immigration began to decline in early 2025, with around 49,000 undocumented workers leaving the workforce monthly through July. This decline has contributed to a smaller overall workforce, prompting employers across various sectors to compete more aggressively for workers.
Job losses in manufacturing may not solely stem from problems within the sector itself but could also be attributed to competition, as workers shift to other industries rather than exiting the job market entirely. This leads to fewer factory workers, yet more output per individual, which is exactly what productivity data reflects.
Manufacturing production experienced a 0.2% uptick in February, with the automobile sector seeing the largest gains among durable goods categories. Non-durable goods manufacturing also rose by 0.2%, driven primarily by chemicals, plastics, rubber, and paper products. Meanwhile, mining production went up by 0.8%, following a prior 0.9% increase in January. Utilities, however, saw a decline of 0.6%, primarily due to a 4.7% drop in natural gas production, which seemed to stem from February’s milder weather rather than any real demand issues.
The growth rate for industrial production in January has been adjusted upward to 0.7%, up from the initial 0.6% estimate.
Consumer goods production showed a mixed bag. While home appliance production was weak in February, it still registered a 7.9% rise compared to the same month last year. Month-on-month sales for these appliances were strong, although they fell below the year-on-year averages. The overall situation regarding product production is complicated by mixed signals in retail sales. The Census Bureau reported a downturn in retail sales for February, but an alternative report from CNBC/NRF, which tracks actual credit card transactions rather than survey responses, indicated that retail sales increased for the fifth month in a row, rising 6.24% year-over-year.
Capacity utilization stayed steady at 76.3%, unchanged from January and 3.1 percentage points below the long-term average. While there is some surplus, it isn’t expanding. Combined with four consecutive months of increased capital spending, this suggests that the industrial sector is growing to meet its existing capacity rather than pulling back.
