US industrial activity closed the year with more resilience than economists had forecast, offering a constructive signal for growth as markets look ahead to 2026. Industrial production rose 0.4% month over month in December, matching November’s pace and comfortably beating expectations for a modest 0.1% gain. The data suggest that parts of the real economy remain sturdier than sentiment indicators and equity valuations might imply, even as tighter financial conditions continue to weigh on investment decisions.

Manufacturing Delivers an Upside Surprise

The most notable element of the report was manufacturing output, which increased 0.2% in December. That result sharply contrasted with forecasts that had penciled in a contraction, reflecting expectations that higher interest rates and softer global demand would curb factory activity. Instead, manufacturers appear to have found pockets of stability, supported by steady domestic demand and incremental improvement in supply chain efficiency.

While the gain does not signal a manufacturing boom, it challenges the prevailing view that US factories are sliding decisively into contraction. For investors, the upside surprise reinforces the idea that industrial cycles may be flattening rather than rolling over, a nuance that could influence expectations for earnings across industrials, materials, and capital goods producers.

Utilities Surge as Energy Output Climbs

Utilities provided the strongest contribution to December’s headline number, with output jumping 2.6%. That increase was driven largely by a 12% surge in natural gas-related activity, reflecting colder weather and stronger seasonal demand for heating. Energy-linked volatility has increasingly influenced month-to-month industrial data, underscoring how weather effects can temporarily mask underlying trends in manufacturing and mining.

The outsized move in utilities highlights an important dynamic for policymakers and markets alike: even as industrial production remains sensitive to cyclical forces, energy demand can inject short-term momentum that distorts broader interpretations of economic strength.

Mining Weakness Offsets Part of the Gain

Not all segments shared in the improvement. Mining output fell 0.7% in December, reflecting ongoing softness in extractive industries. The decline aligns with a broader cooling in resource investment after earlier strength, as commodity prices stabilized and producers adopted a more cautious stance toward expansion.

This divergence across sectors reinforces the mixed nature of the US industrial landscape, where gains in manufacturing and utilities coexist with softness in mining and other capital-intensive activities.

Capacity Utilization Signals Remaining Slack

Capacity utilization edged up to 76.3%, still 3.2 percentage points below its long-run average. That gap suggests the economy retains meaningful slack, even after consecutive months of production gains. From a monetary policy perspective, subdued utilization reduces the risk of near-term inflationary pressure from the industrial sector, offering some reassurance to policymakers balancing growth and price stability.

At the same time, lower utilization implies room for output to rise without triggering aggressive capital spending, a factor that may temper the pace of any industrial rebound in 2026.

What the Data Mean for 2026

Taken together, December’s figures point to an economy that is slowing but not stalling. Industrial production is no longer accelerating, yet it is proving more resilient than expected in the face of restrictive financial conditions. For markets, the data complicate the narrative of a sharp downturn and may support a more gradual recalibration of growth expectations.

As 2026 unfolds, investors will be watching whether manufacturing momentum can persist without energy-driven boosts, and whether capacity utilization begins to climb meaningfully. The balance between resilience and restraint in the industrial sector may prove central to how the broader economy navigates the next phase of the cycle.