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March 18, 2025

Industrial production jumped 0.7% in February, outpacing expectations for a 0.2% increase. The upside outcome in industrial output did not come as a surprise to us. Producers were front-running tariffs before anticipated input cost surges, which resulted in a sizable increase in output for select industries. Manufacturing output accounted for the bulk of the increase in overall industrial production. Mining output rose 2.8% while utility output fell 2.5%, offsetting each other. Utility output dropped 2.5% during the month, after soaring in response to the coldest January since 1988. That is the largest drop in utility output in a year.

Manufacturing output alone surged 0.9% during the month, the largest increase in a year. Manufacturers raced to increase production ahead of tariffs. The production of motor vehicles and parts jumped 8.5% in February and wood products rose 2.7%. Vehicle inventories fell late last year and into the start of this year as consumers replaced vehicles damaged by two monster hurricanes and tried to take advantage of what they feared would be the last of tax credits for electric vehicles. Excluding motor vehicles and parts, manufacturing output would have risen just 0.3%.

On March 12, the U.S. imposed a 25% tariff on imports of steel and aluminum products, which is expected to materially impact the price of new motor vehicles. Estimates range from several thousand dollars to as high as $10,000 or more for the price of a new car, pickup truck or SUV. Consumers, who are already reeling from paying higher prices for vehicles already, are more likely to walk out of the showroom, especially if the cost estimates bear out. New vehicle demand is expected to slow in response to higher prices as we move into late Spring and early Summer.

Aerospace output rose 2.1% after rising 5.6% in January due to the resumption of plane assemblies at a major aerospace producer. They are still catching up from a strike late last year.

Computer and electronic products output rose 0.2% after increasing 2.2% in January due to higher chip demand and the ongoing constructions of data warehousing centers. On a 3-month annualized basis, output for this category rose 13% in February versus 10% in January, a sign of continuing momentum as well as the strongest reading in three years.