The Federal Reserve released its closely watched industrial production report on Friday, January 16, 2026, revealing that American factories managed a modest gain in December to close out a challenging year. Total industrial production rose 0.1% for the month, while manufacturing output also edged up 0.1%—numbers that, while modest, represent potential stabilization in a sector that has struggled to gain traction.

The December Numbers in Detail

The G.17 release from the Federal Reserve showed the following key metrics:

  • Total industrial production: +0.1% month-over-month
  • Manufacturing output: +0.1% month-over-month (following +0.2% in November)
  • Utilities: -1.0% month-over-month
  • Mining: +0.9% month-over-month
  • Capacity utilization: 78.6% (unchanged from November)

At 102.5% of its 2017 average, total industrial production in December stood 1% above its year-earlier level. Capacity utilization, at 78.6%, remains 1.1 percentage points below its long-run (1972-2022) average—suggesting factories have room to increase output without hitting capacity constraints.

A Year of Challenges

The December data caps a difficult year for American manufacturing. Industrial production declined at an annual rate of 3.1% in the fourth quarter, reflecting persistent headwinds from higher interest rates, global trade uncertainties, and shifting demand patterns.

The ISM Manufacturing PMI for December came in at 47.9%, the lowest reading of 2025 and one percentage point below the 12-month average. Any reading below 50 indicates contraction, and December marked another month in which the manufacturing sector struggled to expand.

"A whopping 85 percent of manufacturing GDP was in contraction in December, up from 58 percent the previous month. This reflects the ongoing challenges facing goods-producing industries even as the broader economy continues to grow."

— ISM Manufacturing Report analysis

Sector-by-Sector Breakdown

The industrial production data revealed divergent trends across sectors:

Winners: Mining and Energy

Mining output rose 0.9% in December, benefiting from elevated oil and natural gas production. The energy sector has been a relative bright spot, with domestic producers ramping up output to meet both domestic and export demand.

Losers: Utilities

Utilities production fell 1.0% in December, reflecting milder-than-expected weather that reduced heating demand. This category tends to be volatile and heavily influenced by temperature patterns.

Mixed: Manufacturing

Within the manufacturing sector, performance varied widely by industry:

  • Aerospace and defense: Continued strength driven by order backlogs and government spending
  • Motor vehicles: Modest gains as inventory rebuilding continued
  • Computer and electronics: Mixed results amid ongoing semiconductor supply normalization
  • Primary metals: Weakness reflecting subdued demand from construction and heavy industry

What This Means for the Economy

Industrial production data serves as a crucial indicator of economic health, particularly for the goods-producing sectors that drive investment and employment in many communities. The December results suggest several important takeaways:

Manufacturing Isn't Collapsing

While not thriving, the manufacturing sector is demonstrating resilience. The modest monthly gains in both November and December suggest a potential floor may be forming, even if a robust recovery remains elusive.

Capacity Utilization Provides Buffer

With capacity utilization running below historical averages, factories have room to respond quickly if demand improves. This slack also helps contain inflationary pressures that might otherwise emerge if production were running at or near capacity.

The Services-Manufacturing Divide Persists

The U.S. economy continues to demonstrate a stark divide between robust services growth and struggling manufacturing. This dynamic has significant implications for employment, investment, and regional economic performance.

Looking Ahead to 2026

Several factors will influence industrial production in the months ahead:

  • Interest rates: The Federal Reserve's rate path will affect business investment decisions and housing-related manufacturing
  • Trade policy: Tariff developments and trade agreements will impact both exports and supply chains
  • Consumer demand: Household spending patterns will drive demand for manufactured goods
  • Infrastructure spending: Government investments in roads, bridges, and utilities should provide support

For investors, the industrial production data reinforces the case for selectivity within the manufacturing sector. Companies with strong order backlogs, pricing power, and exposure to growth areas like aerospace, defense, and energy infrastructure may outperform, while those dependent on rate-sensitive construction and housing face continued headwinds.

Key Takeaways

  • December industrial production rose 0.1%, with manufacturing output also up 0.1%
  • Capacity utilization held steady at 78.6%, below the long-run average
  • Mining output increased 0.9% while utilities fell 1.0%
  • The manufacturing sector remains in contraction but may be stabilizing
  • The Fed's rate path and trade policy will be key drivers in 2026