US manufacturing production rises on primary metals surge, outlook unclear

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Manufacturing production increases 0.2% in December

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Slump in motor vehicles output is offset by jump in primary metals

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Industrial production rises 0.4% as utilities provide a boost

By Lucia Mutikani

WASHINGTON, Jan 16 (Reuters) - U.S. factory production unexpectedly increased in December amid a surge in primary metals output that offset a decline at motor vehicle assembly plants, but activity contracted in the fourth quarter against the backdrop of challenges from import tariffs. Some improvement in manufacturing is expected this year as the drag from President Donald Trump's sweeping import duties eases and tax legislation, which made bonus depreciation permanent among other perks, takes effect. An artificial intelligence investment boom is also seen providing support, though some economists warned the environment ?for manufacturers remained fragile, citing weak factory surveys.

"There has been no shortage of reasons to delay big capital expenditure plans. When we look out into this year though we expect some recovery in traditional investment," said Shannon Grein, an economist at Wells Fargo. "Trade policy will likely still ?be a source of concern, but we're not expecting as much tinkering to tariff rates as we saw last year."

Manufacturing output rose 0.2% last month after an upwardly revised 0.3% ?gain in November, the Federal Reserve said on Friday. Economists polled by Reuters had forecast production for the sector, which accounts for 10.1% of ?the economy, falling 0.2% after a previously reported ?unchanged reading in November.

Production at factories increased 2.0% on a year-over-year basis in December. But it dropped at a 0.7% annualized rate in the fourth quarter after growing at a 2.8% pace in the July-September quarter. Manufacturing has been hurt by Trump's sweeping import ?duties, which he has ironically defended as needed to restore a long-declining domestic industrial base.

Though the levies ?have shored up industries like primary metals that faced stiff foreign competition, and an AI investment boom has supported certain segments, the rest of manufacturing has struggled, with the sector shedding 68,000 jobs in 2025.

Economists have long argued a manufacturing renaissance was impossible because of structural issues, including worker shortages, which have been worsened by ?the Trump administration's immigration crackdown.

Primary metals production jumped 2.4%. There were also sizeable increases in the output ?of electrical equipment, appliances and ?components as well as aerospace and miscellaneous transportation. But motor vehicle production dropped 1.1%, declining for a fourth straight month. Motor vehicle output fell 2.8% year-on-year in December.

NO GENUINE SIGNS OF RESHORING Economists generally dismissed the improvement in manufacturing output in the final two months of 2025 as unsustainable, arguing that it was built on front-loading of U.S.-made goods ?by both domestic and foreign manufacturers in anticipation of higher prices because of tariffs, and saw no evidence of reshoring of factory operations.

"With all of last year's data now available, it seems fair to say that any boost to manufacturing from tariffs was driven by front-running and therefore short-lived, with limited signs of genuine reshoring," said Bradley Saunders, North America economist at Capital Economics.

Durable goods manufacturing production edged up 0.1%. Nondurable manufacturing output increased 0.3%, lifted by production of food, beverage and tobacco as well as petroleum and coal, plastics and rubber products. Some economists cautioned that tariff uncertainty still persisted. A U.S. Supreme Court ruling on the legality of Trump's global tariffs is imminent. Manufacturing surveys have largely remained subdued, with tariffs regularly cited as an obstacle, consistent with what economists predicted would be flat-to-falling output in ?the months ahead.

"Elevated uncertainty ?about tariffs and wider federal government policy likely will dissuade manufacturers from investing in the extra capacity required for the recovery in output to stretch its legs," said Samuel Tombs, chief U.S. economist at Pantheon Macroeconomics.

"Manufacturing output will be little changed from its current level at the end of this year."

Last month's rise in manufacturing combined with a weather-driven ?2.6% surge in utilities output to lift overall industrial production 0.4%, matching November's gain. Mining output fell 0.7% in December. Industrial output rose 2.0% year-over-year in December. It grew at a 0.7% rate in the fourth quarter.

Capacity utilization for the industrial sector, a measure of how fully firms are using their resources, increased to 76.3% from 76.1% in November. It is 3.2 percentage points below its 1972-2024 average. The operating rate for the manufacturing sector was unchanged at 75.6%. It is 2.6 percentage points below its long-run average.

Housing, another sector that has been hammered by tariffs, continues to struggle, with a separate report showing homebuilder sentiment deteriorating in January. The National Association of Home Builders/Wells Fargo Housing Market index dropped two points to 37 this month, remaining below the 50 break-even point for 21 straight months. The NAHB said most of the responses to the survey were received prior to Trump's order last ?week for the Federal Housing Finance Agency - which oversees mortgage finance giants Freddie Mac and Fannie Mae - to purchase $200 billion worth of bonds issued by the two companies.

The move is aimed at driving mortgage rates down to boost housing affordability, though economists and realtors argue a lack of housing inventory is the key challenge. Tariffs have raised prices for building materials and appliances, while the immigration crackdown, including raids at construction sites, has undercut labor supply.

"Even though the supply of houses is short, ?don't look for a rapid recovery in homebuilding until corrosive uncertainty about costs, tariffs and other policies is resolved," said Carl Weinberg, chief economist at High Frequency Economics.

(Reporting by Lucia Mutikani; Editing by Andrea Ricci)