May Industrial Production Makes Biggest Jump in 10 Months

May Industrial Production Shows Biggest Jump in 10 Months
May Industrial Production Shows Biggest Jump in 10 Months

The current industrial production trend looks like an unqualified positive for economic bulls who believe better quarters are ahead for the U.S. economy. Industrial output rose 1.2% in May, the manufacturing sector's largest monthly increase since August.

Further, capacity utilization rose by 1% to 74.7% in May -- its highest reading in 18 months. That utilization rate represents a 6.2% increase from a year earlier, and also means that about half of the production that had been idled due to the recession has been reactivated.

However, although industrial production has increased during 10 of the last 11 months, it's still 7.8% below the peak reached in December 2007, which also marked the recession's starting point. The average capacity utilization rate for the 1972-2009 period was 80.6%, according to data compiled by the U.S. Federal Reserve.

Another Month of Across-the-Board Industrial Gains

May was another month of solid gains throughout the industrial sector. Utilities output, which historically increases as the summer air-conditioning season approaches, jumped 4.8%. Meanwhile, non-industrial supplies increased 1.4%; business equipment output rose 1.3%; materials increased 1.3%; and consumer goods rose 1.2%.

In addition, the recovery narrative continued to unfold in the automotive sector. U.S. motor vehicle production, which includes both cars and light trucks, increased to a 7.87 million unit annual pace in May from a 7.16 million unit pace in April. Vehicle output averaged a 5.58 million unit annual pace in 2009.

What's more, car production continued to rise in May, to a 3.17 million unit annual pace from a 2.79 million unit pace in April. That's a roughly 40% increase in auto production from 2009's 2.2 million unit annual pace.

Manufacturing a Recovery, One Month at a Time

In sum, May's industrial production report represents a data point the economic bulls can point to without apologies. The housing sector may be sluggish, but the nation's industrial sector is in an impressive recovery and adding its gains to U.S. GDP growth.

Further, although it's theoretically possible for the nation's economy to grow for years with tepid industrial activity, historically, a strong industrial sector has accompanied every robust U.S. economic expansion. And it's easy to understand why: Manufacturing jobs usually pay higher wages than most service sector jobs, which usually leads to rising median income and disposable income levels, and powers the rising demand that's critical for a sustained economic expansion.