May 2016 Industrial Production, Capacity Utilization and Capacity

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Total industrial production (IP) decreased 0.4% in May (-0.1% expected) after increasing 0.6% in April. Declines in the indexes for manufacturing and utilities in May were slightly offset by a small gain for mining. The output of manufacturing moved down 0.4%, led by a large step-down in the production of motor vehicles and parts; factory output aside from motor vehicles and parts edged down 0.1%. The index for utilities fell 1.0%, as a drop in the output of electric utilities was partly offset by a gain for natural gas utilities. After eight straight monthly declines, the production at mines moved up 0.2%. At 103.6% of its 2012 average, total IP in May was 1.4% below its year-earlier level.

Industry Groups

Manufacturing output fell 0.4% in May, and production was little changed from its level of a year earlier. In May, the production of durables declined 0.7%, the production of nondurables was little changed, and the production of other manufacturing (publishing and logging) fell 0.6%. The largest drop among durable goods, 4.2%, was recorded by motor vehicles and parts. In addition, the indexes for Wood Products (-1.3%) and machinery fell 1.0% or more. Several durable goods industries posted increases, but miscellaneous manufacturing was the only industry to register a gain of more than 1.0%. Within nondurables, increases for food, beverage, and tobacco products and for Paper (+0.4%) offset declines elsewhere; printing and support activities recorded the largest decrease.

The small increase in mining in May resulted from a rebound in coal mining, which had declined in each of the previous eight months, and a gain in nonmetallic mineral mining. Oil and gas extraction was roughly unchanged in May, but the index for oil and gas well drilling and servicing fell for the 20th consecutive month.  

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Capacity utilization (CU) for the industrial sector decreased 0.4 percentage point in May to 74.9%, a rate that is 5.1 percentage points below its long-run (1972–2015) average.

Manufacturing CU decreased 0.4 percentage point in May to 74.8%, a rate that is 3.7 percentage points below its long-run average; using the NAICS definition, manufacturing decreased 0.5%. The operating rate for nondurables was unchanged (Paper: +0.5%), while the rates for durables (Wood Products: -1.6%) and for other manufacturing (publishing and logging) each fell about 1/2 percentage point. The operating rate for mining moved up about 1/2 percentage point, and the rate for utilities dropped about 1 percentage point. 

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Capacity at the all-industries level was unchanged (+0.8% YoY) at 138.2% of 2012 output. Manufacturing edged up +0.1% (+0.9% YoY) to 137.6%. Wood Products extended the upward trend that has been ongoing since November 2013 when increasing by 0.3% (+4.4% YoY) to 165.7%. Paper edged down 0.1% (-0.6% YoY) to 117.1%.

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.