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Positive Signals from Industrial Production?

December 09, 2025

Time to Read: 2 minutes

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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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 capital expenditure 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 of approximately 2%.

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Steady Hiring, Fewer Layoffs

May’s jobs report showed a labor market that is improving, with payroll growth exceeding expectations and layoffs down sharply from last year. Steady hiring and fewer layoffs should continue to support consumer spending and U.S. economic growth.

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A Broader Foundation for Earnings Growth

Although companies benefiting most directly from AI-related capital spending are the main drivers of higher earnings, strength is no longer confined to that group. Earnings across the broader market remain solid and are expected to grow more than 10% this year and next, suggesting market concentration risk is limited.

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Is the Job Market Stabilizing?

After sluggish job growth in 2025, investors are looking for signs that the labor market may be stabilizing. With consumer spending driving 70% of economic activity, an improving labor market is essential to sustaining economic growth.

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Will Markets Remain Resilient?

Global equities have risen an annualized 11% since 2020 despite repeated shocks, as resilient growth and earnings have helped markets recover from periods of volatility. While the U.S.-Iran conflict poses near-term inflation and growth risks, markets remain constructive as earnings expectations continue to improve.

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