June 2016 Industrial Production, Capacity Utilization and Capacity

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Total industrial production (IP) increased 0.6% in June (+0.4% expected) after declining 0.3% in May. For 2Q as a whole, IP fell at an annual rate of 1.0%, its third consecutive quarterly decline. Manufacturing output moved up 0.4% in June, a gain largely due to an increase in motor vehicle assemblies. The output of manufactured goods other than motor vehicles and parts was unchanged. The index for utilities rose 2.4% as a result of warmer weather than is typical for June boosting demand for air conditioning. The output of mining moved up 0.2% for its second consecutive small monthly increase following eight straight months of decline. At 104.1% of its 2012 average, total industrial production in June was 0.7% lower than its year-earlier level.

Industry Groups

Manufacturing output rose 0.4% in June; for 2Q, however, factory output decreased at an annual rate of 1.0%. The production of durables jumped 0.9% in June, the production of nondurables edged down 0.1%, and the production of other manufacturing (publishing and logging) fell 1.5%. Within durables, gains of greater than 1% were registered by machinery; electrical equipment, appliances, and components; and motor vehicles and parts. Wood Products was unchanged. Within nondurables, apparel and leather, paper (-0.4%), chemicals, and plastics and rubber products recorded declines that were largely offset by increases elsewhere; the largest gain was registered by printing and support.

The index for mining edged up 0.2% in June. A rise in the index for oil well drilling and servicing and a second consecutive large monthly increase in the index for coal more than offset declines in oil and gas extraction and in non-metallic mineral mining. 

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

Manufacturing CU increased 0.3 percentage point in June to 75.1%, a rate that is 3.4 percentage points below its long-run average; using the NAICS definition, manufacturing increased 0.4%. The operating rate for durables moved up 0.6 percentage point to 76.1% (Wood Products: -0.3%), while the rates for nondurables and other manufacturing (publishing and logging) fell to 74.8% and 62.5%, respectively (Paper: -0.2%). The operating rate for mining moved up 0.4 percentage point to 73.6%, and the rate for utilities jumped nearly 2 percentage points to 79.3%. 

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Capacity at the all-industries level was unchanged (+0.6% YoY) at 138.2% of 2012 output. Manufacturing edged up +0.1% (+0.8% YoY) to 137.6%. Wood Products extended the upward trend that has been ongoing since November 2013 when increasing by 0.4% (+4.7% YoY) to 166.9%. Paper edged down 0.1% (-0.8% YoY) to 116.8%.

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.