The omicron variant’s spread put pressure on industrial production in December as production declined by 0.1%, missing the estimate of a 0.2% increase on the month, according to data from the Federal Reserve on Friday.
The unexpected decline was mostly offset by an upward revision of 0.2 percentage points to November’s reading, which now stands at a 0.7% gain.
Utility production led the decline with a sharp decrease of 1.5% in December. The manufacturing sector also had a pullback, dropping by 0.3% on the month.
The continuing shortages of input materials and workers only intensified in the last half of December as the number of cases from the omicron variant surged.
Auto production—a major component in manufacturing—was down by 1.3% in December, contributing to one-third of the total decline in manufacturing production.
A bright spot, though, came from the mining sector, where production rose by 2% on the month, driven by gains in the oil and gas sector. But the index for mining was still 6% below its pre-pandemic level.
Capacity utilization—which feeds into our calculation for the RSM US Supply Chain Index—inched down 0.1 percentage points to 76.6%.
We expect the modest pullback in industrial production will be short-lived, likely extending to January before picking up again as demand remains strong and supply issues ease.