Positive signals from industrial production?
Industrial production is a proxy for the level of manufacturing in the economy, and last week’s report showed the highest growth rate in three years. Not only is this positive for the manufacturing sector and those companies tied to it, but it is also an indication that a recession may be unlikely in the near term.
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Published on 09 December 2025
Last week’s economic news brought a report on industrial production, a measure of manufacturing activity in the U.S. economy. The metric grew 1.6% year over year in September, the largest acceleration in three years and an indication that cyclical sectors may be improving. While this growth is just below the historical average, the upward trend suggests improving momentum, which we view as encouraging.
On the heels of this report, we remind investors that industrial production typically slows as the country approaches a recession. Now, however, the indicator is on the rise and broadening beyond artificial intelligence spend, which is positive for future economic growth.
We believe manufacturing will continue to improve in 2026 as lower interest rates and pro-growth provisions of the recent tax and spending legislation stimulate investment. This trend supports our outlook for gross domestic product at approximately 2%.
851650 Exp : 09 December 2026
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Higher inflation and elevated interest rates typically weigh on corporate profitability, yet corporate margins continue to climb to record highs. While that strength is evident both in the U.S. and abroad, U.S. outperformance versus Europe is now the widest on record. Stronger margins have helped contribute to better-than-expected earnings and reinforce U.S. equity leadership. The question now is whether that strength can persist?
Higher interest rates have become a frequently cited risk to corporate earnings and the economy. The conventional thinking is straightforward: when borrowing costs rise, companies face higher interest expenses, profits come under pressure, and economic growth slows. While there is truth to that relationship, the current cycle may differ from investors’ expectations.
Both the dot-com era and the rise of artificial intelligence suggest that early productivity data can understate the actual economic impact of transformative technologies. In the case of the internet, later revisions to productivity gains surpassed early estimates. The same may prove true for AI, implying stronger support for growth.
History of stocks after the Fed hikes
History of stocks after the fed hikes
Sticky inflation and resilient growth have revived monetary tightening, increasing the risk of higher-for-longer rates and near-term volatility. We continue to believe economic resilience and strong corporate profits should continue to provide a favorable backdrop for stocks, and would use periods of market weakness to add selectively to equities. Additionally, owning real assets can help hedge against inflation.
