February 2016 Industrial Production, Capacity Utilization and Capacity

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Total industrial production (IP) decreased 0.5% in February (-0.2% expected) after increasing 0.8% in January. Sizable declines in the indexes for both utilities and mining in February outweighed a gain of 0.2% for manufacturing. The output of utilities dropped 4.0%, as unseasonably warm weather curbed the demand for heating. Mining production fell 1.4% and has decreased nearly 1.3% per month, on average, over the past six months. At 106.3% of its 2012 average, total IP in February was 1.0% below its year-earlier level.

Industry Groups

Manufacturing output rose 0.2% in February (0.0% expected), as an increase of 0.4% for durable manufacturing more than offset a decrease of 0.1% for nondurable manufacturing; the output of other manufacturing (publishing and logging) was unchanged. The indexes for most major durable goods industries either advanced or were little changed: Machinery, primary metals, and miscellaneous manufacturing registered the largest gains, nearly 1% each, while Wood Products recorded the only notable decrease (-1.2%). Within nondurables, decreases for food, beverage, and tobacco products; for textile and product mills; and for chemicals slightly outweighed gains of 2.5% or more for apparel and leather manufacturing and for petroleum and coal products, as well as smaller increases for other industries. Paper rose by 0.4%.

The large drop in mining in February resulted from decreases in crude oil extraction, coal mining, and oil and gas well drilling and servicing. Since late 2014, the index for oil and gas well drilling and servicing has fallen more than 60%. 

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Capacity utilization (CU) for the industrial sector decreased 0.4 percentage point in February to 76.7% (76.9% expected), a rate that is 3.3 percentage points below its long-run (1972–2015) average.

Manufacturing CU was unchanged in February at 76.1%, a rate that is 2.4 percentage points below its long-run average. The operating rate for durables edged up (Wood Products: -1.5%), while the rate for nondurables edged down (Paper: +0.4%); the utilization rate for other manufacturing (publishing and logging) was unchanged. The operating rate for mining moved down 1.0 percentage point, and the rate for utilities dropped more than 3 percentage points; the rates for both sectors were below their long-run averages by nearly 10 percentage points or more.   

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Capacity at the all-industries level was unchanged (+1.3% YoY) at 138.7% of 2012 output. Manufacturing edged up +0.1% (+1.4% YoY) to 139.5%. Wood Products extended the upward trend that has been ongoing since November 2013 when increasing by 0.3% (+2.6% YoY) to 161.7%. Paper was unchanged (-0.2% YoY) to 116.7%.

The foregoing comments represent the general economic views and analysis of Delphi Advisors, and are provided solely for the purpose of information, instruction and discourse. They do not constitute a solicitation or recommendation regarding any investment.