Utilities Did the Heavy Lifting: December IP up 0.4% While Q4 Manufacturing Shrank 0.7%

The Federal Reserve’s January 16, 2026 press release put a brave face on December’s industrial production: total IP rose 0.4%, and Q4 posted a 0.7% annualized gain. Read to the second line, and the story flips—manufacturing rose just 0.2% in December and fell at a 0.7% annual rate for the quarter. The headline says growth; the factory floor says contraction. Utilities, up 2.6%, did a lot of the December lifting. Mining slipped 0.7%.

Here’s what the data reveals:

• Total IP’s +0.4% December move and +0.7% Q4 annualized rise were flattered by utilities +2.6%, while manufacturing contracted −0.7% annualized in Q4.

• “Most major market groups” posted gains—but cyclicals stumbled: consumer durables −0.7%, construction supplies −0.3%, and business supplies flat.

• December’s strength clustered in nondurables +1.1% and business equipment +0.8%, an uneven mix for a true cyclical upswing.

• The release spotlights sweeping historical revisions (new Census benchmarks, 2022 NAICS, updated IO weights, methods back to 1972) yet omits December/Q4 capacity utilization—a key slack signal.

• Delays and methodological changes from prior months introduce narrative drift; earlier portrayals of momentum may no longer hold.

December and Q4 at a Glance

The composition matters more than the headline. Here’s the snapshot investors needed but the headline didn’t emphasize:

Headline Growth, Factory Slowdown

The juxtaposition is the story: total IP “grew at an annual rate of 0.7% in Q4,” while manufacturing “declined at an annual rate of 0.7%.” That is not a rounding error; it’s a regime difference. Investors should parse the headline as a utilities-and-mix outcome, not a signal of accelerating industrial momentum. A quarterly decline in manufacturing—despite a modest +0.2% December uptick—points to a factory sector still wrestling with softer goods demand, tighter inventory management, and uneven capital goods traction.

If you’re looking for a durable reacceleration, Q4 manufacturing didn’t deliver it. The risk is that businesses continue to guard margins by trimming output rather than rebuilding inventories, muting the rebound impulse into early 2026.

Utilities’ Boost, Mining’s Drag: The Composition Trap

Utilities surged 2.6% in December while mining fell 0.7%. The result? A mechanically stronger total IP print that obscures core softness. Utilities output can swing with weather and usage patterns; it’s not a reliable signal of underlying industrial demand. When power demand props up the index while mining and cyclically sensitive manufacturing tread water, the headline becomes a composition trap.

That dynamic also explains how the release can claim broad gains while the forward-looking parts of the industrial complex underwhelm. December’s +0.4% looks less like an inflection and more like a statistical lift from non-core components.

Breadth Looks Better Than It Is

“Most of the major market groups posted gains,” the release says. True, but the details matter:

• Strength clustered in nondurables (+1.1%) and business equipment (+0.8%).

• Cyclicals lagged: consumer durables (−0.7%), construction supplies (−0.3%), and business supplies (flat).

That’s not the breadth you want heading into a capex-led cycle. Consumer durables weakness hints at fragile discretionary demand. Construction supplies softness points to a still-choppy build cycle. Flat business supplies suggest firms are not meaningfully ramping day-to-day operating throughput. Meanwhile, nondurables can reflect replenishment more than acceleration, and business equipment’s +0.8%—welcome as it is—needs follow-through to validate a capex upswing.

In short, the composition betrays the headline: the cyclical engine coughed while defensive cylinders fired.

The Missing Utilization Gauge and the Revision Reset

The release foregrounds a sweeping annual revision—2022 Economic Census benchmarks, conversion to 2022 NAICS, updated BEA 2017 input-output weights, revised indicators and seasonal factors, and methodological changes stretching back to 1972. Capacity and utilization were also revised using fresh Census data through Q4 2024, with updates from other agencies.

Then, silence where it counts: no December or Q4 capacity utilization levels in the provided text. Utilization is the market’s favorite shortcut for slack, pricing power, and capex intent. Its omission leaves investors flying with one instrument down, just as the methodology has moved the goalposts.

Layer on notices about delayed September–November 2025 releases and a technical Q&A on estimation, and you have elevated uncertainty around the recent path of output and utilization. Translation: the historical map was redrawn, but the December compass reading is missing from the narrative excerpt. Treat “growth” soundbites with caution until utilization confirms—or contradicts—the story.

What This Means for Markets

Equities: Fade the Headline, Respect the Mix

• Industrials: Prefer high-quality, aftermarket and services-heavy names over pure volume plays. Manufacturing’s −0.7% Q4 contraction argues for patience on operating leverage stories.

• Cyclicals vs. defensives: Underweight consumer durables exposure given −0.7% in December and soft construction supplies (−0.3%). Maintain exposure to nondurables and select business equipment beneficiaries, but demand confirmation next print.

• Utilities: Don’t extrapolate +2.6% output into earnings strength—it’s often transitory. Treat as a factor tailwind, not a fundamental one.

• Materials/Energy: Mining’s −0.7% reading is a caution flag for upstream volume momentum.

Fixed Income: Modestly Supportive for Duration, Selective Credit

• Rates: A factory sector contracting −0.7% annualized in Q4 is not a hawkish data point. The mix supports a neutral-to-bullish stance on duration, especially if next prints don’t show manufacturing reacceleration.

• Credit: Be selective in high beta cyclicals tied to consumer durables and construction supply chains. Favor balance sheet strength in industrial HY until utilization and order books firm.

Macro Watchlist: Confirmation or Reversal

• Next IP print: Does manufacturing clear the −0.7% Q4 hole or deepen it?

• Utilization release: The missing metric will calibrate slack and capex odds—watch it closely once published.

• Composition: Look for follow-through in business equipment beyond +0.8% and a turn in construction supplies; avoid overreacting to utilities noise.

• Revision effects: With benchmarks and seasonal factors reset, assume higher error bands around month-to-month reads; focus on multi-month trends.

The Investor Takeaway

Strip out the utilities sugar high and December’s +0.4% total IP is a mixed bag: manufacturing only +0.2% in the month and −0.7% annualized for Q4, cyclicals soft where it counts, and a conspicuous absence of utilization in the narrative. The annual revision rewrote the backstory, but the latest chapter still lacks a clear capacity signal.

Positioning: stay quality-over-beta in industrials; underweight discretionary durables and construction-exposed names until breadth improves; keep measured duration longs; and be choosy in industrial credit. The headline cheered growth. The details argued for selectivity and discipline. Until utilization confirms a turn, treat the December pop as composition—not conviction.