August 2017 Industrial Production, Capacity Utilization and Capacity

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Total industrial production (IP) declined 0.9% in August (+0.1% expected) following six consecutive monthly gains. Hurricane Harvey, which hit the Gulf Coast of Texas in late August, is estimated to have reduced the rate of change in total output by roughly 3/4 percentage point. The index for manufacturing decreased 0.3%; storm-related effects appear to have reduced the rate of change in factory output in August about 3/4 percentage point. The manufacturing industries with the largest estimated storm-related effects were petroleum refining, organic chemicals, and plastics materials and resins. At 104.7% of its 2012 average, total IP in August was 1.5% above its year-earlier level.

The output of mining fell 0.8% in August, as Hurricane Harvey temporarily curtailed drilling, servicing, and extraction activity for oil and natural gas. The output of utilities dropped 5.5%, as unseasonably mild temperatures, particularly on the East Coast, reduced the demand for air conditioning. 

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Industry Groups

Manufacturing output edged down 0.1% in July. The index for durables decreased 0.5%, but the index for nondurables increased 0.4%. Among durable manufacturing industries, the largest decrease, about 3 1/2%, was recorded by motor vehicles and parts; in addition, the indexes for primary metals and for furniture and related products each dropped more than 1%. Among nondurable manufacturing industries, increases of 1% or more were posted by chemicals and by apparel and leather. The index for other manufacturing (publishing and logging) moved down 0.4%.

Manufacturing output decreased 0.3% in August. A gain of 0.3% for durables was outweighed by decreases of 0.9% for both nondurables and other manufacturing (publishing and logging). Among durable manufacturing industries, the largest increase was recorded by motor vehicles and parts, which rose 2.2% following a drop of 4.2% in July. Other notable gains in durable manufacturing in August came from the indexes for primary metals and for aerospace and miscellaneous transportation equipment, each of which advanced more than 1% (but wood products: -0.8%). The largest contributors to the decline in nondurable manufacturing were the indexes for chemicals and for petroleum and coal products, both of which were held down by factory shutdowns related to Hurricane Harvey (but paper products: +0.9%).

In August, the index for mining dropped 0.8% while the output of utilities fell 5.5%. Within mining, all of the major components recorded losses; the largest decrease was for oil and gas well drilling and servicing, which fell for a second month in a row. Even so, the index for mining in August was 9.7% above its year-earlier level. 

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Capacity utilization (CU) for the industrial sector decreased 0.8 percentage point (-1.0%) in August to 76.1%, a rate that is 3.8 percentage points below its long-run (1972–2016) average.

Manufacturing CU moved down 0.3 percentage point in August to 75.3%, a rate that is 3.1 percentage points below its long-run average; NAICS manufacturing: -0.3%, to 75.8%. Utilization for durable manufacturing increased 0.2 percentage point to 74.5%, while the operating rate for nondurable manufacturing fell 0.7 percentage point to 77.2% (wood products: -0.8%; paper products: +0.9%). The operating rate for mining decreased 0.9 percentage point to 83.9%, and the rate for utilities fell 4.3 percentage points to 73.9%. 

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Capacity at the all-industries level nudged up 0.1% (+1.1% YoY) to 137.6% of 2012 output. Manufacturing (NAICS basis) inched up +0.1% (+0.8% YoY) to 137.4%. Wood products: +0.0% (+0.6% YoY) to 156.2%; paper products: 0.0% (-0.9% 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.