Implications: Industrial production surged in December, posting its largest monthly gain since 2014, completely reversing the November decline. Not surprisingly, the strength in December came from the highly volatile utility and auto sectors, which were also the main culprits behind the November drop. After unseasonably warm weather in November, utility output posted its largest one-month jump since 1989 as demand for home heating and electric power ramped up in response to more normal December conditions. Meanwhile, manufacturing rose 0.2% in December, due entirely to a jump in auto production which rose 1.8% in December and is now up 6.6% over the past year. "Core" industrial production, which is manufacturing excluding autos, remained unchanged in December. Although it's down 0.3% versus a year ago, it's up at a 1.2% annual rate during the past three months, a lagged effect of the rebound in oil prices since earlier this year. The rebound in energy prices is also having a direct effect on mining, which despite remaining unchanged in December is up at a 12% annual rate in the past three months. Further, oil and gas-well drilling posted its seventh consecutive gain in December, jumping 9.4%, and is now up at a massive 150% annual rate in the past three months. Based on other commodity prices, we think oil prices are in the "fair value" range, which should keep mining in recovery after the problems of the past two years. Although weak overseas economies will continue to be a headwind for production, we expect solid growth in the year ahead. In other recent news, the Empire State index, a measure of manufacturing sentiment in New York, fell to +6.5 in January from +7.6 in December, signaling continued improvement in the factory sector, though at a slightly slower pace.
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