PROTECTING SMALL BUSINESS, PROMOTING ENTREPRENEURSHIP

This Week’s Economic Data: Strong 2017 Finish for Industrial Production

By at 18 January, 2018, 2:55 pm

by Raymond J. Keating-

Industrial production – the output of the nation’s industrial sectors, i.e., manufacturing, mining and utilities – finished 2017 on a strong note, expanding by 0.9 percent, even though manufacturing output barely inched ahead, according to the latest report from the Federal Reserve.

Overall industrial production was up for the year, growing by 1.8 percent. While that’s not exactly robust, it came after declines in 2016 and 2015. For good measure, growth clearly stepped up in the fourth quarter of 2017, jumping by 8.2 percent at an annual rate, after being restrained in the third quarter due to the effects of Hurricanes Harvey and Irma.

Manufacturing output largely paralleled the story for total industrial production. For the year, manufacturing production expanded by 1.3 percent, but that compared to no growth in 2016 and a mere 0.1 percent for 2015. And while growth barely moved ahead at 0.1 percent in December, the fourth quarter showed strong growth – expanding an annual rate of 7.0 percent.

As noted in the following two charts, industrial production and manufacturing production have a lot of ground to make up.

As noted in Chart 1, industrial production temporarily broke above the pre-recession high in mid-2014, then falling back, and only again pushing above the pre-recession peak in October 2017. As for manufacturing, Chart 2 shows that output has not yet reached the pre-recession high. So, the U.S. industrial sector – in particular, manufacturing – stand woefully short of where it should be in terms of output, especially if we assumed even a sluggish rate of growth.

The good news comes on the policy front, with business tax reform (including lower tax rates and expensing) passed and signed into law, as well as regulatory restraint being shown by both the White House and Congress. This, of course, is a dramatic shift in the policy climate compared to the tax-and-regulate agenda imposed during the Obama years. Looking ahead, substantial regulatory relief and reform, along with further tax relief, would create, barring protectionist missteps on the trade front, even more fertile ground for industrial growth in the near term and over the long run.

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Raymond J. Keating is chief economist for the Small Business & Entrepreneurship Council.

Keating’s latest book published by SBE Council is titled Unleashing Small Business Through IP:  The Role of Intellectual Property in Driving Entrepreneurship, Innovation and Investment and it is available free on SBE Council’s website here.

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