June 2018 Industrial Production, Capacity Utilization and Capacity

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Total industrial production (IP) rose 0.6% in June (+0.6% expected) after declining 0.5% (previously -0.1%) in May. For 2Q2018 as a whole, IP advanced at an annual rate of 6.0%, its third consecutive quarterly increase. Manufacturing output moved up 0.8% in June; also, the production of motor vehicles and parts rebounded after truck assemblies fell sharply in May because of a disruption at a parts supplier. Factory output, aside from motor vehicles and parts, increased 0.3% in June.

The index for mining rose 1.2% and surpassed the level of its previous historical peak (December 2014); the output of utilities moved down 1.5%. At 107.7% of its 2012 average, total IP was 3.8% higher in June than it was a year earlier. 

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Industry Groups

Manufacturing output moved up 0.8% in June and increased at an annual rate of 1.9% in 2Q, about the same pace as in 1Q. In June, the index for durables advanced 1.6%, while the production of nondurables was little changed. The output of other manufacturing (publishing and logging) declined 0.7%. Within durables, the rebound of about 8% for motor vehicles and parts was accompanied by increases of 1.2% for wood products, and 1.0% or more for computer and electronic products, and for aerospace and miscellaneous transportation equipment. Within nondurable manufacturing, a large drop for apparel and leather and smaller declines for plastics and rubber products and for food, beverage, and tobacco products were offset by gains elsewhere (paper products: 0.0%).

Mining output rose more than 1% in June for its fifth consecutive monthly increase; the index jumped more than 19% at an annual rate in 2Q. Gains in the oil and gas sector continued to support the expansion of the mining sector so far this year. In June, the index for utilities decreased 1.5%, as a loss for electric utilities outweighed a gain for gas utilities. 

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Capacity utilization (CU) for the industrial sector increased 0.3 percentage point (PP) in June to 78.0%, a rate that is 1.8PP below its long-run (1972–2017) average.

Manufacturing CU rose 0.5PP to 75.5% in June, a rate that is 2.8PP below its long-run average. The operating rate for durables increased about 1PP, and the rate for nondurables was unchanged (wood products: +0.9%; paper products: +0.1%). The utilization rate for mining rose to 92.7%, which is about 6PP higher than its long-run average and about 1PP above its peak in 2014. The rate for utilities moved down 1.3PP and remained well below its long-run average. 

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Capacity at the all-industries level nudged up 0.2% (+1.5 % YoY) to 138.1% of 2012 output. Manufacturing (NAICS basis) rose fractionally (+0.1% MoM; +1.2% YoY) to 138.0%. Wood products: +0.3% (+2.3% YoY) to 161.1%; paper products: -0.1% (-0.4% YoY) to 110.9%.

Note that estimates for industrial capacity for 2018 were revised for this release. The revisions reflect updated measures of physical capacity from various government and private sources as well as updated estimates of capital spending by industry. Measured from 4Q2017 to 4Q2018, capacity for the industrial sector is now expected to increase 2.0%, a rate that is 0.1PP higher than previously estimated. The increase in capacity for manufacturing is unrevised at 1.3%. Mining capacity is now expected to rise 5.7%. This increase is 0.9PP higher than previously estimated, primarily reflecting faster capacity growth for oil and gas extraction. The gain in capacity for utilities, at 2.0%, is 0.3PP lower than previously estimated.

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.