U.S. industrial production expanded in February, the fourth straight month of increases, beating economist forecasts as manufacturing and mining output both grew for the second consecutive month, the Federal Reserve reported Monday.
The headline number understates the strength of the underlying report. Business equipment output rose for the fourth straight month, extending a capex boom that has lifted the index 6.4 percent above its year-earlier level — the strongest year-over-year gain of any major market group in the report.
Separate data released Monday showed capital spending expectations among New York manufacturers are at their highest level in more than three years.
The capital investment surge is showing up in productivity as well. Manufacturing productivity rose 2.8 percent in the third quarter of 2025 and 2.3 percent in the fourth quarter compared with a year earlier — the strongest back-to-back readings since before the 2008 financial crisis, setting aside the post-recession rebound years when productivity figures are typically distorted by compositional changes in the workforce. As recently as early 2023, manufacturing productivity was running nearly two percent below year-earlier levels.
Factory headcount has declined nearly every month for the past two years, but the employment picture is more complex than it appears. Research from the Federal Reserve Banks of Dallas and San Francisco finds that net unauthorized immigration turned negative in early 2025 and averaged a loss of roughly 49,000 unauthorized immigrant workers per month through July — shrinking the overall labor pool and forcing employers across sectors to compete more aggressively for available workers.
Manufacturing’s employment losses likely reflect that competition as much as any weakness in the sector itself: workers are being pulled toward other industries rather than pushed out of the workforce. The result is a leaner factory headcount producing more output per worker — which is precisely what the productivity numbers show.
Manufacturing output rose 0.2 percent in February, with motor vehicles posting the largest gain among durable goods categories. Nondurable manufacturing also rose 0.2 percent, driven by chemicals, plastics, rubber, and paper products. Mining output increased 0.8 percent, following a 0.9 percent gain in January. The one drag was utilities, which fell 0.6 percent — almost entirely the result of a 4.7 percent drop in natural gas output reflecting mild February temperatures rather than any underlying demand weakness.
January’s industrial production gain was revised up to 0.7 percent from the initially reported 0.6 percent.
Consumer goods production was mixed. Home electronics output was soft in February, though it remains 7.9 percent above its year-earlier level. Appliances were strong month-to-month but have been running below trend on a year-over-year basis. The mixed picture in goods production is complicated further by conflicting retail sales signals: the Census Bureau reported weak February retail sales, while the CNBC/NRF Retail Monitor — which tracks actual credit and debit card transactions rather than survey responses — showed retail sales rising for the fifth consecutive month and running 6.24 percent above year-earlier levels.
Capacity utilization held steady at 76.3 percent, unchanged from January and 3.1 percentage points below its long-run average. The slack is real but is not widening — which, combined with four straight months of expanding capital investment, suggests the industrial sector is growing into its existing capacity rather than retreating from it.
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