Market Analysis • February 18, 2026
January’s 0.7% IP Pop Masks a Softer Q4: Utilization Still 3.2 Points Below Norm
The Federal Reserve’s February 18, 2026 release delivers a cheerful headline—industrial production up 0.7% in January with “widespread gains”—but the fine print does the heavy lifting. Late-2025 was quietly revised weaker across core categories, capacity utilization was marked down, and December’s apparent strength leaned even more on weather-sensitive utilities. The result: even after January’s bounce, total utilization sits at 76.2%, still 3.2 percentage points under its long-run average of 79.4.
Here’s what the data reveals:
- Material downward revisions to Q4 2025: December IP cut to +0.2% (from +0.4%); December manufacturing to 0.0% (from +0.2%).
- Capacity utilization for Oct–Dec 2025 revised lower across total industry and manufacturing, amplifying the slack heading into 2026.
- December utilities revised up to +3.0% (from +2.6%) while mining was revised down to -0.9% (from -0.7%)—strength leaned even more on weather.
- January delivered +0.7% IP and +0.6% manufacturing, but utilization remains soft: total 76.2%, manufacturing 75.6%, utilities 72.9%.
- Growth leadership is concentrated: business equipment up +0.9% m/m and +9.3% YoY, while consumer goods are only +1.3% YoY and nonindustrial supplies +1.0% YoY.
Revisions Rewrite the Backstory
The revisions are not cosmetic; they reshape the narrative around late-2025. Core output lost altitude, and the utilization base slipped more than earlier prints implied. Below is a concise look at the changes that matter.
The Q4 Roll-Back: IP and Manufacturing
| Month (2025) | Total IP MoM (Prev) | Total IP MoM (Current) | Manufacturing MoM (Prev) | Manufacturing MoM (Current) |
|---|---|---|---|---|
| Sep | +0.2% | +0.1% | +0.2% | 0.0% |
| Oct | -0.3% | -0.4% | -0.6% | -0.8% |
| Nov | +0.4% | +0.1% | +0.3% | +0.3% |
| Dec | +0.4% | +0.2% | +0.2% | 0.0% |
That November “reacceleration”? Now a +0.1% IP print, not +0.4%. December’s manufacturing growth? Gone—revised to flat.
Utilization: More Slack Than Advertised
| Month (2025) | Total Util. (Prev) | Total Util. (Current) | Manufacturing Util. (Prev) | Manufacturing Util. (Current) |
|---|---|---|---|---|
| Oct | 75.8% | 75.6% | 75.4% | 75.2% |
| Nov | 76.1% | 75.6% | 75.6% | 75.3% |
| Dec | 76.3% | 75.7% | 75.6% | 75.2% |
With these revisions, January’s recovery merely returns total utilization to 76.2%, roughly where it stood in August 2025 (76.1%). Manufacturing utilization at 75.6% is still 2.6 points under its long-run average of 78.2.
Utilities’ Weather Tailwind vs. Core Weakness
The latest release doubles down on a familiar theme: weather juiced the late-2025 numbers. December utilities were revised higher to +3.0% (from +2.6%), while December mining slipped to -0.9% (from -0.7%). Add in January utilities at +2.1%, and the headline looks sturdier than the core.
- Mining trended softer into January: -0.2% m/m in January after a -0.9% December.
- Utilities volatility is unmistakable: Aug -3.1%, Sep +1.2%, Oct +2.2%, Nov -1.6%, Dec +3.0%, Jan +2.1%.
In other words, the “broad-based” January gains sit atop a base that was significantly weaker than initially reported, with late-2025 strength even more dependent on the thermostat than the factory floor.
January’s Bounce: Broad—but Not Broad-Based Strength
Yes, “all major market groups posted gains” in January. But context matters.
- Construction supplies fell in Q4—-1.2% in October and -0.4% in December—before a modest January rebound (+0.5%). That’s not momentum; that’s a pothole.
- Business equipment is the standout: +0.9% m/m and +9.3% YoY. Consumer goods and nonindustrial supplies barely move the needle at +1.3% YoY and +1.0% YoY, respectively.
- Sector anecdotes line up with this concentration risk. Autos posted the “first increase since August 2025”—welcome, but also a reminder of prior drag. Tech-adjacent “computer and electronic products” rose at least 1% in January, underscoring capex/tech resilience rather than old-economy breadth.
The monthly trend underscores how tepid the runway was before January’s lift-off. Total IP from August to December (revised): -0.3%, +0.1%, -0.4%, +0.1%, +0.2%. Manufacturing: 0.0%, 0.0%, -0.8%, +0.3%, 0.0%. January helps, but it doesn’t erase the flat-to-weak slope of Q4.
Same Seat, New Cushion: Utilization Still Soft
Even post-pop, utilization is not shouting “tight.”
- Total industry: 76.2%, still 3.2 points below the long-run 79.4%.
- Manufacturing: 75.6%, 2.6 points below its 78.2% norm.
- Utilities: 72.9%, a full 11.1 points under the 84.0% long-run average.
Capacity growth in 2026 won’t bail out the optics quickly: total +1.1% (manufacturing +1.0%, mining +0.1%, utilities +2.8%). With manufacturing and mining capacity barely growing, any demand firming could lift utilization cyclically, but the revised lower base confirms persistent industrial slack.
Narrative Drift, Explained
Compare this report to the January 16, 2026 release:
- December IP then: +0.4%; now: +0.2%.
- December manufacturing then: +0.2%; now: 0.0%.
- December mining then: -0.7%; now: -0.9%. Utilities then: +2.6%; now: +3.0%.
The Fed also implemented its annual revisions: updated IP indexes, seasonal factors, 2022 NAICS reclassification, and refreshed weights. Methodology modernization often redistributes growth across categories and months; here, it tilts the late-2025 story softer, raises utilities’ contribution, and confirms that Q4 manufacturing’s annualized decline (previously cited at -0.7%) was no fluke.
What This Means for Markets
- Equities: Industrial beta isn’t back. The utilization gap and downward revisions argue for selectivity. Favor firms levered to business equipment and tech hardware—segments posting ≥1% January gains and +9.3% YoY for business equipment—over broad industrials tied to construction supplies or nonindustrial inputs, which remain +1.0–1.3% YoY at best. Auto-exposed suppliers may see near-term relief, but volatility persists given the “first increase since August” framing.
- Credit: Softer late-2025 core and still-low utilization keep a lid on broad pricing power. IG industrials with strong capex end-market exposure look steadier; HY cyclicals tied to construction or mining face tougher comps despite January’s bounce.
- Rates: This isn’t a re-acceleration signal. With manufacturing utilization 2.6 points below its norm and revisions pointing down, the report leans disinflationary at the margin. It doesn’t force the Fed’s hand, but it supports a patient easing bias later in 2026 if labor and CPI cooperate. Front-end sensitive to Fed path; duration benefits from a growth-moderation narrative.
- Commodities: Mining’s -0.9% in December and -0.2% in January aligns with tepid resource output. Utilities’ outperformance is weather, not demand. Energy and metals demand signals from IP remain mixed.
- Positioning and risk management:
Looking Ahead
- Watch whether January’s +0.6% manufacturing gain sticks. Two more months will tell if this was normalization or noise.
- Track ISM new orders, durable goods core (ex-aircraft), and auto production schedules to validate the business equipment outperformance.
- Monitor utilities normalization; if weather fades and core doesn’t compensate, the headline will weaken quickly.
- Capacity trends matter in 2H26: with manufacturing capacity only +1.0% in 2026, even modest demand can tighten utilization—if demand is real.
The headline cheered “widespread gains.” The data quietly marked down the base and left utilization adrift below long-run norms. For investors, the edge is in the spread: lean into the capex-led pockets actually compounding—business equipment and tech-adjacent manufacturing—while staying skeptical of blanket industrial beta until utilization climbs and revisions stop doing the heavy lifting.