February 06, 2023

Industrial production decreased at a 1.7 percent annual rate during the fourth quarter. In spite of a decline in economic activity during the first half of 2022 and the fourth quarter industrial production slowdown, the economic expansion continued. At 103.4 percent of its 2017 average, total industrial production in December was 1.6 percent above its year-earlier level. In December of 2022, capacity utilization dropped 0.6 percentage point to 78.8 percent, a rate that is 0.8 percentage point below its long-run (1972–2021) average. The Capacity Utilization figure suggests that there is ample room for a non-inflationary, sustained expansion. There is ample room for pro-growth policies to be adopted in order to stimulate the economy. Yet the growth rate is not robust enough to preclude a significant slowdown or a recessionary downdraft. We look for a steady slowdown of the industrial Production growth rate through most of 2023. Our estimates are consistent with a deceleration of the industrial production growth rate. The question is whether the index will expand or decline during 2023. While it may be a close call, we still forecast a positive expansion even if it falls short of the trendline. We look for the index to expand 1% during the next 12 months.

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