Industrial Production Softening, Capacity Galore

factoryWednesday's economic reporting included industrial production and capacity utilization data for the month of June. It turns out that production was muted, and capacity remains defiantly under that key 80% barometer. It just doesn't look like the United States is on its way back to being a manufacturing powerhouse.

Industrial production (output) was reported with a soft 0.2% gain in June, and May's number was revised down to a gain of 0.5% from a preliminary report of 0.6%. Bloomberg was projecting a 0.4% gain.

Capacity utilization (potential output ratio) came in at only 79.1%, under the 79.2% consensus estimate from Bloomberg. Manufacturing activity was up by only 0.1% in June, versus a lower revision to +0.4% (+0.6% preliminary) in May.

This is interesting when you consider that unemployment is improving, and when we are supposed to be in the midst of a snap-back recovery from a poor first-quarter gross domestic product figure of -2.9%.

Here is a partial breakdown by segment for production:

  • Apparel and leather production was down 1.3%.
  • Food, beverage and tobacco products fell 0.6%.
  • Mining was up 0.8%, after a 1.1% rise in May.
  • Utilities fell 0.3%, after falling 0.4% in May.
  • Ex-auto manufacturing rose 0.2%, versus a 0.3% gain in May.
  • Durable goods rose 0.4% in June (an annual rate of 8.8% in the second quarter).
  • Non-metals mineral products rose 1.0%.
  • Non-durable goods fell by 0.3%.
  • Output of petroleum products and coal products was down 2.7% (listed partially from a major refinery disruption).

If you use June as a benchmark for the end of the quarter as we do, manufacturing production was up 6.7% on an annualized basis, after rising 1.4% in the first quarter. So even with these reports looking a tad soft, it just means that the growth in the second quarter might not be quite as robust as economists were hoping just a week or two ago.

Filed under: Economy
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