December Industrial Production Rises 0.4% as Manufacturing Shows Surprising Strength

U.S. industrial production rose 0.4% in December, according to data released by the Federal Reserve on Thursday, exceeding economists' expectations and providing fresh evidence that the manufacturing sector may be finding its footing after a challenging year. The stronger-than-expected reading suggests the industrial economy entered 2026 with more momentum than many had anticipated.

Breaking Down the Numbers

The December gain pushed total industrial production to 102.3% of its 2017 average, representing a 2.0% increase from year-ago levels. For the fourth quarter as a whole, industrial production grew at an annual rate of 0.7%, a modest but positive reading that contrasts with weakness earlier in 2025.

Manufacturing output, which accounts for roughly 75% of total industrial production, rose 0.2% in December. While the manufacturing gain was smaller than the headline figure, it represented an improvement from recent months and suggested stabilization in a sector that has faced persistent headwinds.

December Industrial Production Details:

• Total Industrial Production: +0.4%
• Manufacturing Output: +0.2%
• Mining Production: -0.7%
• Utilities Output: +2.6%
• Capacity Utilization: 76.3%

Durable Goods Show Particular Strength

Within manufacturing, durable goods production provided notable bright spots. Primary metals output surged 2.4%, while electrical equipment, appliances, and components rose 1.7%. Aerospace and miscellaneous transportation equipment also contributed positively, advancing 1.5%.

The strength in business equipment production was particularly encouraging, with the index for this category growing 0.8%. Transit equipment and industrial machinery both showed gains, suggesting that capital spending by businesses remains supportive of manufacturing activity.

"The December data provides reason for cautious optimism about the manufacturing sector's trajectory. While challenges remain, we're seeing stabilization in key categories after a difficult period."

— Federal Reserve economic commentary

The Utilities Spike

The largest contributor to December's headline gain was utilities production, which jumped 2.6%. The increase reflected higher demand for heating as colder weather settled across much of the country in the final weeks of 2025. While weather-related swings in utilities output tend to be temporary, they can significantly impact monthly industrial production readings.

Mining production, by contrast, fell 0.7% in December, weighed down by softness in oil and gas extraction. The decline reflected both lower energy prices and the impact of seasonal factors on drilling activity.

Capacity Utilization Edges Higher

Capacity utilization—a measure of how much of the nation's industrial capacity is being used—rose to 76.3% in December. While the reading remains 3.2 percentage points below its long-run average of 79.5%, the improvement suggests manufacturers are gradually putting more of their productive capacity to work.

Manufacturing capacity utilization held steady at 75.6%, indicating that factories have room to increase output without significant investment in new capacity. This dynamic could prove beneficial if demand accelerates in 2026, as manufacturers could ramp production relatively quickly.

Business Equipment Investment Remains Strong

One of the most encouraging elements of the December report was the continued strength in business equipment manufacturing. The index for business equipment has risen 10.0% over the past year—a robust pace that suggests companies continue to invest in productivity-enhancing capital goods despite broader economic uncertainty.

The strength in business equipment spending reflects several factors, including the ongoing push to automate operations, investments in artificial intelligence infrastructure, and reshoring of manufacturing capacity. These structural trends appear likely to provide continued support for industrial production in 2026.

Consumer Goods Production Mixed

Production of consumer goods increased 0.7% in December, though the composition was mixed. Nondurable consumer goods production rose 1.1%, reflecting strength in food, beverage, and personal care products. However, durable consumer goods production fell 0.7%, weighed down by weakness in automotive output.

The divergence reflects broader patterns in consumer spending, where demand for services and everyday necessities has remained solid while spending on big-ticket durable goods has softened in response to higher interest rates and economic uncertainty.

What It Means for 2026

The December industrial production data suggests the manufacturing sector is entering 2026 in better shape than some had feared. While a robust manufacturing recovery remains unlikely given persistent headwinds from tight financial conditions and elevated labor costs, stabilization at current levels would represent a meaningful improvement from the contraction seen in much of 2024 and early 2025.

Several factors could support manufacturing in the year ahead:

• Lower Interest Rates: The Fed's rate cuts have begun to ease financing costs for capital-intensive manufacturers.
• Reshoring Trends: Companies continue to bring production back to the U.S., supporting domestic manufacturing investment.
• AI Infrastructure: Demand for computing hardware and related equipment shows no signs of slowing.
• Inventory Restocking: After destocking in 2025, some industries may begin rebuilding inventories.

Investment Implications

For investors, the industrial production data provides modest support for industrial and manufacturing stocks. Companies exposed to business equipment spending and capital goods may be particularly well-positioned, while those dependent on consumer durable goods demand face a more challenging environment.

Industrial ETFs and manufacturing-focused funds could benefit if the stabilization trend continues, though selectivity remains important given the wide performance dispersion within the sector.