Primary Metals Surge Drives Surprise December Rise in US Manufacturing
Washington D.C., Friday, 16 January 2026.
A volatile 2.4% surge in primary metals production drove an unexpected rise in December factory output, masking a fourth consecutive monthly decline in the critical automotive sector.
Defying Forecasts Amidst Volatility
Data released by the Federal Reserve on Friday, January 16, 2026, reveals that U.S. manufacturing output defied economists’ pessimistic forecasts, posting a 0.2% increase in December [1][3]. Market consensus had anticipated a contraction of 0.2%, making this positive reading a significant upside surprise [3][5]. This unexpected resilience follows an upwardly revised gain of 0.3% in November, suggesting that certain industrial segments are finding footing despite broader economic headwinds [2][5]. However, the headline growth masks a sharp divergence in sector performance. While primary metals production jumped 2.4%—likely shored up by import levies—the automotive sector continued its downward trajectory [3]. Motor vehicle production dropped 1.1% in December, marking its fourth consecutive monthly decline and falling 2.8% year-on-year [1][3]. This split illustrates the uneven impact of current trade policies, where protectionist measures may benefit specific raw material producers while straining downstream manufacturers facing higher costs.
Quarterly Contraction and Broader Industrial Trends
Despite the monthly uptick to close out the year, the broader trend points to a cooling industrial engine. Manufacturing activity actually contracted at a 0.7% annualized rate during the fourth quarter of 2025, a stark reversal from the 2.8% growth pace observed in the third quarter [1][3]. This slowdown is further evidenced by the labor market, with the manufacturing sector shedding 68,000 jobs throughout 2025 [1][2]. Beyond manufacturing, total industrial production climbed 0.4% in December, surpassing the expected 0.1% increase [4][5]. This broader index was heavily supported by a seasonal anomaly in the utilities sector, which surged 2.6% due to frigid temperatures boosting demand for heating [3][4]. Conversely, mining output proved to be a drag on the index, sliding 0.7% in December following a 1.7% jump the previous month [4][5]. Capacity utilization in the industrial sector edged up to 76.3%, though this remains approximately 3.2 percentage points below its long-term average, indicating persistent slack in the economy [4][5].
Tariff Uncertainty and Future Outlook
The economic narrative remains dominated by the complexities of trade policy. Economists suggest that recent manufacturing gains may be partly driven by “front-running”—businesses rushing to produce or import goods before potential tariff hikes take full effect [2]. Bradley Saunders, a North America economist at Capital Economics, noted that with the full year’s data available, these boosts appear short-lived with “limited signs of genuine reshoring” [2]. Similarly, Shannon Grein of Wells Fargo highlighted that while some recovery in traditional investment is expected in 2026, trade policy remains a lingering concern [1][2]. The housing market, closely tied to industrial health through raw material demand, also signals caution; the National Association of Home Builders/Wells Fargo Housing Market index dropped to 37 in January 2026, staying below the break-even point for 21 straight months [1][2]. Carl Weinberg of High Frequency Economics warned that a rapid recovery in sectors like homebuilding is unlikely until the “corrosive uncertainty” regarding costs and tariffs is resolved [1][2].