- by New Deal democrat
There is more and more accumulating evidence that manufacturing, at least in the aggregate, is something close to Booming. That message was apparent in yesterday’s durable goods orders report for December. While the headline number (blue in the graph below) declined -1.4%, the three month average for this very volatile series made a new post-pandemic high. The much less noisy capital goods new orders number (red, right scale) increased 0.6% to a new all time high. The three month average for that metric made a new all time high as well:
These numbers have been rising for the past 18 months, and even accelerating, as the YoY% gains have also been increasing:
The same dynamic was apparent in yesterday’s industrial production release, in which headline production rose 0.7% for the month, and the manufacturing component 0.6%. The latter made a 3+ year high, and the former a post-pandemic high. But as I pointed out, the real driver was electric utility production. The below graph drives this home by norming all three to 100 as of just before the pandemic. Headline production is up 1.3% since then, but manufacturing production, despite the increases of the past 18 months, is still down -0.4%. Utility production, however, is up 13.9%!:
As I indicated then, I suspect this is almost all driven by AI data center and attendant power plant construction. Below I again show headline industrial production (blue) compared with employment in manufacturing (red), and in non-residential construction (gold), again all normed to 100 as of just before the pandemic:
Employment in manufacturing has been declining for several years, and is now -1.2% below its pre-pandemic levels. But employment in construction ex-residential housing is up 9.4%, and as of the latest report was still rising!
We know that some non-residential construction employment was increasing due to the Inflation Reduction Act, which led to a surge in construction of manufacturing plants, but that peaked in the middle of 2024 and has been declining since:
While this isn’t definitive, and I haven’t yet found a way to do a more granular analysis, it all points to the big increase in both electric utility production and non-residential construction employment being concentrated on the building of AI data centers and the gargantuan energy demands to power them. On this (I submit) rather slender reed is the current growth of the economy reliant.
