October 2017 Industrial Production, Capacity Utilization and Capacity

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Total industrial production (IP) rose 0.9% in October (+0.5% expected), and manufacturing increased 1.3% (+0.3% expected). The index for utilities rose 2.0%, but mining output fell 1.3%, as Hurricane Nate caused a sharp but short-lived decline in oil and gas drilling and extraction. Even so, industrial activity was boosted in October by a return to normal operations after Hurricanes Harvey and Irma suppressed production in August and September. Excluding the effects of the hurricanes, the index for total output advanced about 0.3% in October; manufacturing: +0.2%.

With modest upward revisions for July through September, total IP is now estimated to have only edged down 0.3% at an annual rate in 3Q; the previously published estimate showed a decrease of 1.5%. Total IP has risen 2.9% over the past 12 months; output in October was 106.1% of its 2012 average. 

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Industry Groups

Manufacturing output rose 1.3% in October, and upward revisions to previous months reduced the decrease estimated for 3Q to 1.2% at an annual rate. In October, the index for durables increased 0.4%, and the index for nondurables increased 2.3%. Most durable goods industries posted gains, with the largest advance, 1.0%, recorded by motor vehicles and parts (wood products: 0.0%). Gains were also widespread among nondurable goods producers; notably, the return to more normal levels of production following the hurricanes led to jumps of 5.8% for chemicals and 4.0% for petroleum and coal products (paper products: +0.8%).

In October, the decline of 1.3% in mining output reflected reductions in all of its major components. The index for utilities rose 2.0%; output in August was revised up from a drop of 4.9% to a decline of 1.3%, and the rate of change in September was revised down from an increase of 1.5% to a decrease of 1.0%. 

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Capacity utilization (CU) for the industrial sector rose 0.9% to 77.0%, a rate that is 2.9 percentage points below its long-run (1972–2016) average.

Capacity utilization for manufacturing was 76.4% in October, a rate that is 2.0 percentage points below its long-run average. Utilization for durables increased 0.2 percentage point to 75.7%, and the operating rate for nondurables rose 1.7 percentage points to 78.1% (wood products: 0.0%; paper products: +0.8%). The operating rate for mines fell 1.3 percentage points to 82.4%, and the rate for utilities rose 1.5 percentage points to 77.2%. 

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Capacity at the all-industries level nudged up 0.1% (+1.2% YoY) to 137.8% of 2012 output. Manufacturing (NAICS basis) inched up +0.1% (+0.8% YoY) to 137.6%. Wood products: +0.0% (+0.5% YoY) to 156.3%; paper products: 0.0% (-0.5% 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.