BIG PICTURE: Still Busy On Factory Floor

-- Weather-related drag on utilities flat-lined January industrial output
-- Factory production alone increased healthy 0.7% in January
-- Manufacturers have gotten past overseas supply disruptions
-- But the sector's demand for labor input has not kept pace with output gains


NEW YORK (Dow Jones)--Don't worry. The flat reading on industrial production was a head fake. The factory sector is doing fine.

Steep but likely temporary declines in utility use and mining activity held industrial production unchanged in January. Unseasonably warm weather caused less demand on utilities, and the drop in mining was the first in almost a year.

Manufacturing output alone--74% of all industrial production--increased 0.7% last month. Auto makers led the gain, with vehicle output jumping 6.8% after a 3.8% increase in December.

The Federal Reserve also revised total December industrial output much higher, to show an increase of 1.0% rather than 0.4% reported earlier. [That refiguring makes a nice counterpoint to Tuesday's downward revisions to December retail sales. Perhaps instead of shopping, more factory workers were at their jobs.]

Economists at Nomura Securities said that according to one Fed economist "roughly 0.45 percentage points reflected new data received on vehicle assemblies and a number of other industries that had previously been estimated due to a low response rate. In addition, upwardly revised data from the Bureau of Labor Statistics on production worker hours accounted for another 0.15 [percentage point] of December's upward revision."

U.S. manufacturing struggled last year with supply disruptions overseas--the disasters in Japan and flooding in Thailand. The latest numbers suggest those obstacles are behind the sector.

Moreover, the first piece of February data show continued expansion. The New York Fed said the state factory sector is expanding this month, although a slowdown in the growth of new demand bears watching.

Politicians are heralding the factory rebound as necessary for the economy. And certainly increased output from any sector is welcome to the outlook.

The production gains, however, are not the salvation for the American workforce.

That's because the increases have not been matched by an equal strength in hiring or overall labor input. The average workweek for a factory production worker, at 41.9 hours, is at its longest since January 1998 but that likely reflects the mild weather as much as production schedules.

Since bottoming out in June 2009, manufacturing output, as measured by the Fed, has increased nearly 18%. Aggregate hours worked--which counts production jobs and average worktime--has risen less than 8%. Productivity growth has accounted for the bulk of the output rise.

Even so, the latest numbers suggest solid footing for manufacturing. Its recovery will provide stability to an outlook, allowing economists and investors to worry about other numerous uncertainties, such as Greece, Iran, new regulations and election-year politics.