AI Boom. Utilities provided 88.8% of the increase in IP this month.
Industrial Production and Capacity Utilization
Please consider the Fed’s Industrial Production and Capacity Utilization report for December 2025.
Industrial Production (IP) increased 0.4 percent in December and grew at an annual rate of 0.7 percent in the fourth quarter. Manufacturing output rose 0.2 percent in December but declined at an annual rate of 0.7 percent in the fourth quarter. In December, the index for mining fell 0.7 percent while the index for utilities climbed 2.6 percent. At 102.3 percent of its 2017 average, total IP in December was 2.0 percent above its year-earlier level. Capacity utilization stepped up to 76.3 percent, a rate that is 3.2 percentage points below its long-run (1972–2024) average.
Industrial Production Month-Over-Month Details
- Industrial Production: 0.4 percent
- Manufacturing: 0.2 percent
- Motor Vehicles and Parts: -1.1 percent
- Consumer Durable Good: -0.7 percent
- Utilities: +2.6 percent
Those are my calculations, matching the Fed’s posted numbers.
Q: How much did utilities impact the bottom line number?
A: Calculation Below
As per Fed Supplemental Data, utilities weight is 12.48 percent of Industrial production.
2.6 * .1248 = 0.324 percentage points of the 0.4 percentage point rise.
But to three decimal points, I calculate the December 2025 increase in IP at 0.365 percent.
Thus, utilities provided 0.324 of 0.365 = 88.8 percent of the increase in IP this month.
Once again, the growth is AI-related.
Industrial Production Index
Industrial Production Index Recent Detail
Industrial Production Index Detail Since 2007
Industrial Production Index Details Since 2007
- The all-time high for manufacturing IP was December 2007 at 106.6. We have not come close since, currently 98.2.
- The then all-time high for overall IP was December 2007 at 102.4 We hit a new high of 104.1 in September of 2018, currently 102.3 (under the December 2007 high).
Industrial Production Percent Change Since 2007-12
- Manufacturing IP: -7.9 percent
- Total IP: -0.1 percent
- Utilities: +13.0 percent
18 Years of Negative Industrial Production
If I am not mistaken, 18 years of negative IP except utilities is a sobering statistic.
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Is the economy booming or what?
The Ph.Ds. at the FED don’t know the difference between money and liquid assets. “liquidity dependence” is just another name for disintermediation.
https://macroeconomicpolicynexus.substack.com/p/deja-vu-at-the-federal-reserve
So more electricity is being used for more AI data centers, more or less.
Where does the output of AI data centers show up in the measurement of economic productivity?
I feel like I’m missing something because I do understand making a car or software but not this.
AI = wasteful abomination
I’m astounded by the stupidity and gullibility of the human race.
AI is just COMPUTERS! Nothing NEW nor REVOLUTIONARY as Wall Street claims, in order to sell you the BIGGEST FRAUD IN HISTORY based on fake earnings derived from circular financing and unsustainable debt! AI doesn’t make new discoveries. With COMPUTERS it’s always garbage in, garbage out. We’ve had “AI” automated robotic production lines for HALF A CENTURY! All that AI does is: create fake videos; fake news; fake information that must be corrected by humans resulting in material losses to businesses and society; facilitate fraud; horrible customer service; censor facts and free speech; oppress us with ubiquitous surveillance; waste water and electricity; and pollute the environment with ugly data centers that raise your electricity bill.
The one SIGNIFICANT result of AI is that it gives the bankers and big corporations a contrived excuse to fire YOU based on fraudulent claims of productivity as per above! Higher AI Tech stock prices are also used to tout surveillance and censorship as something more palatable and positive because it makes you money.
I think it is important to distinguish the different types of AI. Yes, chatbots and mainstream generative video and image AIs are mostly amusement and will not replace the majority of workers. Large Language Models like chatGPT will not evolve to become something like Lt. commander Data or Skynet, no matter what Sam Altman claims. We are nowhere near AGI (Artificial General Intelligence) and chatbots are not going to get us there.
But if you define AI as system that can look at data and make decisions based on that data, then the improvements have been massive and impactful. Self driving cars are just one example of that. There are many others that are being used in businesses and industry as we speak.
McDonald’s Singapore for example pioneered an AI system in partnership with Google that manages their online advertising spend in real time. The system gets data from in-store security cameras and the in-store CRM system to measure the volume of customers in store. If it is low, it automatically increases the budget on online ads. If it is high, it drops the online advertising budget. All in real time and without any human intervention. And the formula for “what is high and what is low” and the budget for each was not written by humans. It was the system itself who figure out the optimal budgets for each scenario based on Machine Learning.
AI is much more than chatbots and Large Language Models.
Dismissing the technical progress and impact of AI entirely is as dangerous and unwise as falling for the chatbot hype.
You are saying that investing billions in data centers just to calculate a still arbitrary advertising budget for Singapore’s McDonald’s is a good thing. Whereas a mininum-wage employee already working at McDonald’s could provide this priceless information for free and just as fast? I think people like you are dangerous and harmful.
Good comment. I remember when PC’s first came out and one of the benefits of the few was, we could store recipes on it. That quickly became foolish as more sophisticated software such as spreadsheets and word processing became available. It is not a stretch to expect uses for AI will snowball in similar fashion.
I don’t think it’s quite as bad as all that. There are situations that benefit with the use of AI.
I think it is useful in situations where it can be treated as an assistant to somebody who is already an expert. That is not how it’s being used in business but that is how it’s being used in research.
Most of the business applications are the ones that we are all subject to the most and they are also the ones that are genuinely horrible.
People stopped thinking for themselves. They are using computer programs (AI) to commit intellectual suicide which is what the silicon valley ologarchs want. AI has engendered an epidemy of self-lobotomy. From eBay item descriptions to masters thesises generated by AI, people stopped producing original thought. They became robots hiding behind machines.
No doubt, all of the verbal vomit and worthless comments out of dc are taking a toll on energy usage.
And don’t forget the correlation between pirates and global warming.
I doubt your causation and substitute my correlation!
New AI datacenters and new electricity generating equipment likely consumed decent portion of manufacturing output in 2025. This probably means that “legacy” manufacturing declined, may be significantly.
The electrification of all economies continues. The biggest constraint to this economic growth is a lack of electricity.
In the US in 2024, we added 38 GW of new electricity generation: 30 GW of solar, 5 GW of wind, 3 GW of natural gas.
In 2025, we added 45 GW: 33 GW of solar, 7 GW wind, 4 GW gas, and 1 GW of nuclear.
As the numbers show, most new power generation is from renewables. Unfortunately, Trump is doing what he can to stop renewables. He recently stopped several new wind developments, including one that was 75% complete. So there goes 6 GW of new power.
The next best alternative is natural gas. We could easily add around 10 GW of new gas generation each year, but there is a 2-4 year wait list for new gas turbines. Which restricts us to perhaps 5 GW per year.
Nuclear is a long wait and too expensive. We have only added 3 GW of nuclear since 2000. The last was Vogtle unit 4 last year. It took 11 years and $30 billion to build for just 1 GW of power.
The latest theme is SMRs. Some people think that they will be our salvation. Many tech companies are already signing contracts for power from SMRs that haven’t been built yet and are not expected to be ready till the 2030s.
The problem with SMRs is cost. We have been building them for 70 years now and using them in subs and aircraft carriers. But we have never been able to get the costs down low enough to commercialize them. And I don’t think that will change anytime soon. In spite of the work in 25 countries with over 100 smr designs, no one has been able to make them work at a reasonable cost.
Others say “fusion” is coming. Who are knows. Maybe in 50 years.
The reality is that the “only” way that we can add significant amounts of electricity generation is with renewables.
China understands this. In 2024 they added 429 GW of new generation: 277 GW of solar, 80 GW of wind, 14 GW of hydro, 4 GW of nuclear, and 54 GW of coal (while closing 36 GW of old coal plants).
This is why they have a better chance to dominate the AI race and win the electrification race.
When I mention this reality, Trump’s cult supporters here try to tell me that renewables are ugly, bad for the environment, take up too much space and cost too much.
They believe Trump when he says that electricity prices are high because of renewables. That is completely false. Electricity prices go up when there is more demand than supply. Keep holding back supply in the face of rising demand and prices go up. Which is exactly what Trump is doing.
I suspect that most states will keep encouraging growth in renewables because there really isn’t any other viable alternative. Good thing renewables remain the least expensive source of new generation
“The biggest constraint to this economic growth is a lack of electricity.”
Close but not quite right. The biggest constraint is a fat clown in the White House.
Since 80% of solar panels are manufactured in China as well as almost the same for the key components for wind I expect that sooner or later China will pull another rare earths-type embargo on us so continued reliance on China is problematic. Fortunately things are looking up in domestic and friendly production especially on the battery side we now have ample supplies of the end product although some parts are still sourced in China but that will end soon enough. There is some domestic production but no mega factories …yet.
We are behind in electricity production by a good amount. Our AI chips are more efficient in energy but sheer quantity of even inferior ships can make up for that with no problem. This race is looking more and more serious and if I believe what some really smart people are telling me, the cost savings AI will provide to what we do already are tremendous plus the new products and services AI will think pretty much guarantees that high levels of investment will continue. In the end who knows what will happen? One thing is certain. Europe is so far behind in this that it is not even funny anymore.
It reminds of the book “Freedom’s Forge” and its “Rule of Three”. The first year and a half you order the machines and re-tool. The second year you start to produce and remove bottlenecks and third year you get a deluge of goods. This is a bit different of course because the goods are not tanks, shops and planes but things I really can’t quantify but others more qualified can. Nevertheless, the principle remains the same.
Your memory is very short and selective. China’s rare earth restrictions are a direct response to Trump’s tariffs – not the cause of them. Europe and the US had full access to rare earths (and solar panels) but the tariffs put an end to that.
Sure it’s our fault. If we only do whatever China wants then everything will be fine. Is that what you meant?
It is our fault.
One thing that you, Mish, and myself agree on, is the US needs a plan to identify and domestically produce strategically critical items; whether that be steel, aluminum, rare earths, medicines etc
And while we are executing that plan to set up domestic production of these strategic items, we should be purchasing and stockpiling them at the same time.
We have sat back and watched China execute their plan to dominate strategic items for 25 years. During that time, they were very happy to sell them to us. We could at least have been stockpiling them. But we didn’t. And we didn’t encourage domestic production either.
Trump’s solution is to try to stop the flow of these strategic items from China and elsewhere with tariffs by raising their price and availability before we stockpile them or set up domestic production. And his tariffs only encourage countries like China to begin restricting supply to the US.
Correct. We have always believed that China, like Russia and North Korea before them, would screw up their economy with central planning. However, China seems to have planned brilliantly over the last 25 years. They had the foresight to know that the world was going to electrify for the rest of this century and they have spent those 25 years identifying which sectors they could dominate. They built the world’s most complete supply chain for all things electrical, from raw materials, to finished goods throughout every region of their country. They developed relations with countries where they could source much of what they didn’t have locally. And now they dominate in a multitude of critical areas including rare earths, magnets, semi-conductors, batteries, power transmission, solar, wind, EVs, high speed electric trains, etc.
A big bonus would also be energy security for a country with limited fossil fuels other than coal. This can be seen by the massive amounts of renewable energy being added each year.
They are also building a fair amount of conventional nuclear (28 under construction), but those still represent a tiny amount compared to renewables. That is because nuclear is so much more expensive.
China intends to “win” the AI race by winning both the renewables race and the semi-conductor race. And this is paying off for them already as the implementation of AI in much of their manufacturing sector, is making them even more efficient and low cost.
Trump also says he wants to win the AI race. Which is why he is desperate the get TSMC to set up more factories in the US. The crazy thing is that Trump doesn’t even want to enter the renewables race. He repeatedly says he wants to shut them down. Which he recently did with 6 GW of wind projects. He seems to wants to win this race with one leg cut off.
There is no way that we can power all the AI data centers we want to build without massive amounts of renewables. (The same goes for aluminum smelting, and so many other things which Trumps also wants.)
So Mish, would you agree with the position that our economy is essentially a mirage in it’s entirety now? The stock market is, the numbers seem to be too, and the sentiment isn’t there to back it up. I feel like this is an appropriate term now.
It’s a trans economy. Not an actual economy.
It’s not transitioning anywhere though. It’s a pseudo economy. A vapor-economy.
If AI levels off or retracts we are in big trouble.
What could possibly go wrong with this set up?
Note that all the IP gain last month was for a cost of AI, not any AI profitability. A cost that is barely beginning.
“18 years of negative IP except utilities is a sobering statistic.” Absolutely. Really remarkable. And over a period when stock valuations have appreciated so, it is all the more remarkable.
The electricity noose around everyone’s neck is about to shock and tighten. I’m wondering if I should buy a nat gas generator and start creating my own electricity.
Shh….don’t tell the city, it’ll be out little secret.
symbol IXC is a good hedge to profit also. any of mish’s stock pickers have ideas to make cabbage off this electric play
With all of this AI, will the world be smarter?
No. Even more narrowly curated than it had been. You will be able to get a simplistic answer faster, though.