June 2017 Industrial Production, Capacity Utilization and Capacity

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Total industrial production (IP) rose 0.4% in June (+0.3% expected) for its fifth consecutive monthly increase. Manufacturing output moved up 0.2% (+0.2% expected); although factory output has gone up and down in recent months, its level in June was little different from February. The index for mining posted a gain of 1.6% in June, just slightly below its pace in May. The index for utilities, however, remained unchanged. At 105.2% of its 2012 average, total IP in June was 2.0% above its year-earlier level.  

For 2Q as a whole, total IP advanced at an annual rate of 4.7%, primarily as a result of strong increases for mining and utilities. Manufacturing output rose at an annual rate of 1.4%, a slightly slower increase than in 1Q. 

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Industry Groups

Manufacturing output moved up 0.2% in June following a decline in May. The production of durables advanced 0.4%, while the indexes for nondurables and for other manufacturing (publishing and logging) were little changed. Nearly all major industry groups within durables posted gains (e.g., wood products: +1.4%). Within nondurables, plastic and rubber products registered an increase of more than 1%, and apparel and leather recorded a decrease of more than 1%; the other major components of nondurables posted gains or losses of 0.5% or less (e.g., paper products: +0.2%).

The index for mining recorded a second consecutive gain of more than 1.5% in June, with advances in oil and gas extraction, in coal mining, and in drilling and support activities. Although mining production was 9.9% higher than its year-earlier level, it was still 9.0% below its peak in December 2014. After jumping 14.1% at an annual rate in 1Q, the index for mining increased at the same pace in 2Q. The output of utilities was unchanged in June, as a decrease for gas utilities was offset by an increase for electric utilities. 

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Capacity utilization (CU) for the industrial sector increased 0.2 percentage point (+0.3%) in June to 76.6 percent, a rate that is 3.3 percentage points below its long-run (1972–2016) average.

Manufacturing CU rose 0.1 percentage point in June to 75.4%, a rate that is 3.0 percentage points below its long-run average. The operating rates for durables and for other manufacturing (publishing and logging) each advanced, while the rate for nondurables remained unchanged (wood products: +1.3%; paper products: +0.2%). Capacity utilization for all three of these major components of manufacturing remained below their respective long-run averages, with the deficit being the greatest for other manufacturing. Utilization for mining moved up 1.1 percentage points to 84.8% in June but remained below its long-run average. The operating rate for utilities was unchanged at 76.4%. 

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After revisions to estimates of 2017 capacity in June’s report, capacity at the all-industries level nudged up 0.1% (+1.0% YoY) to 137.3% of 2012 output. Manufacturing (NAICS basis) inched up +0.1% (+0.9% YoY) to 137.2%. Wood products: +0.0% (+0.6% YoY) to 156.1%; paper products: 0.0% (-1.4% YoY) to 110.4%.

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.