April 2016 Industrial Production, Capacity Utilization and Capacity

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Total industrial production (IP) increased 0.7% in April (+0.2% expected) after decreasing in the previous two months. Manufacturing output rose 0.3% after declining the same amount in March. The index for utilities jumped 5.8% in April, as the demand for electricity and natural gas returned to a more normal level after being suppressed by warmer-than-usual weather in March. Mining production fell 2.3% in April, and it has decreased more than 1.5% per month, on average, over the past eight months. At 104.1% of its 2012 average, total IP in April was 1.1% below its year-earlier level.

Industry Groups

Manufacturing output increased 0.3% in April. The production of durables rose 0.6% (Wood Products: +0.6%); the largest gains were recorded by machinery and by motor vehicles and parts, with increases of about 2.5% and 1.25%, respectively. Only a few durable goods industries posted declines, with the largest, about 1.25%, for primary metals. The output of nondurable manufacturing was unchanged in April (Paper: unchanged), as gains in the indexes for food, beverage, and tobacco products and for plastics and rubber products offset declines for nearly all of the other industries. The output of other manufacturing (publishing and logging) declined 0.4%.

The drop of 2.3% for mining in April reflected substantial cutbacks in oil and natural gas extraction as well as reductions in coal mining and in oil and gas well drilling and servicing. The index for coal mining has fallen nearly 40% over the past 12 months. The increase of 5.8% in the output of utilities was its largest since February 2007, when it leapt 6.2%. In April, electric utilities and natural gas utilities expanded 5.4% and 9.3%, respectively. 

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Capacity utilization (CU) for the industrial sector increased 0.5 percentage point in April to 75.4%, a rate that is 4.6 percentage points below its long-run (1972–2015) average.

Manufacturing CU increased 0.2 percentage point in April to 75.3%, a rate that is 3.2 percentage points below its long-run average; using the NAICS definition, manufacturing increased 0.3%. The operating rate for durables increased 0.4 percentage point (Wood Products: +0.3%), while the rates for nondurables (Paper: unchanged) and other manufacturing (publishing and logging) edged down. The operating rate for mining dropped to 72.5%, the lowest rate over the history of this series, while capacity utilization for utilities jumped 4.2 percentage points to 78.6%. 

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Capacity at the all-industries level was unchanged (+1.0% YoY) at 138.2% of 2012 output. Manufacturing edged up +0.1% (+1.0% YoY) to 137.5%. Wood Products extended the upward trend that has been ongoing since November 2013 when increasing by 0.3% (+4.5% YoY) to 165.2%. Paper edged down 0.1% (-0.5% YoY) to 117.2%.

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.