July 2016 Industrial Production, Capacity Utilization and Capacity

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Total industrial production (IP) rose 0.7% in July (+0.3% expected) after moving up 0.4% in June. The advance in July was the largest for the index since November 2014. Manufacturing output increased 0.5% in July for its largest gain since July 2015. The index for utilities rose 2.1% as a result of warmer-than-usual weather in July boosting demand for air conditioning. The output of mining moved up 0.7%; the index has increased modestly, on net, over the past three months after having fallen about 17% between December 2014 and April 2016. At 104.9% of its 2012 average, total IP in July was 0.5% lower than its year-earlier level.

Industry Groups

Manufacturing output rose 0.5% in July, and production was 0.2% above its level of a year earlier. In July, durables, nondurables, and other manufacturing (publishing and logging) all recorded gains of about 0.5%. Among durables, increases of more than 1% occurred in motor vehicles and parts, wood products (+1.3%), and miscellaneous goods. Within nondurables, petroleum and coal products, chemicals, and plastics and rubber products posted gains of 0.8% or higher, while printing and support activities registered the only decrease of more than 1%; paper edged down by 0.1%.

The index for mining moved up 0.7% in July, with declines in oil and gas extraction more than offset by increases in the indexes for oil well drilling and servicing and for coal. 

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Capacity utilization (CU) for the industrial sector increased 0.5 percentage point in July to 75.9%, a rate that is 4.1 percentage points below its long-run (1972–2015) average.

Manufacturing CU increased 0.4 percentage point in July to 75.4%, a rate that is 3.1 percentage points below its long-run average. The operating rate for durables moved up 0.4 percentage point (wood products: +0.9%); the rates for nondurables and for other manufacturing (publishing and logging) also increased, each gaining 0.3 percentage point (paper: 0.0%). The operating rate for mining moved up 0.8 percentage point to 74.9%, and the rate for utilities rose 1.6 percentage points to 81.0%. 

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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 137.7%. Wood products extended the upward trend that has been ongoing since November 2013 when increasing by 0.4% (+4.7% YoY) to 167.5%. Paper edged down 0.1% (-0.9% 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.