May 2020 Industrial Production, Capacity Utilization and Capacity

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Total industrial production (IP) increased 1.4% in May (+2.9% expected), as many factories resumed at least partial operations following suspensions related to COVID-19. Even so, total IP in May was 15.4% below its pre-pandemic level in February. Manufacturing output -- which fell sharply in March and April -- rose 3.8% in May; most major industries posted increases, with the largest gain registered by motor vehicles and parts. The indexes for mining and utilities declined 6.8% and 2.3%, respectively. At 92.6% of its 2012 average, the level of total industrial production was 15.3% lower in May than it was a year earlier. 

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Industry Groups

Manufacturing output rose 3.8% in May, but it was still 16.9% below its pre-pandemic level in February (NAICS manufacturing: +3.8% MoM; -16.5% YoY). The index for durable manufacturing increased 5.8% in May; the most sizable gain among its components was for motor vehicles and parts, where output rose substantially but also remained more than 60% below its February level. Durable goods industries that recorded production increases between 8% and 10% include nonmetallic mineral products, aerospace and miscellaneous transportation equipment, and furniture and related products (wood products: 0.0%). The index for nondurables rose 2.1%, with advances of around 10% or more for textile and product mills, for apparel and leather, for printing and support, and for plastics and rubber products (paper products: -0.1%). The output of other manufacturing (publishing and logging) moved up 2.5%.

The output of utilities fell 2.3% in May, as both gas and electric utilities posted losses. Mining output dropped 6.8%, with declines in nearly all categories. After falling nearly 28% in April, the index for oil and gas well drilling declined almost 37% further in May and was more than 63% below its year-earlier level. In addition, the index for crude oil extraction has fallen about 5% in each of the past two months. 

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Capacity utilization (CU) for the industrial sector increased 0.8 percentage point (PP) to 64.8% in May, a rate that is 15.0PP below its long-run (1972–2019) average and 1.9PP below its trough during the Great Recession.

Manufacturing CU in May was 62.2%, 2.2PP higher than in April but 1.5PP below its recession trough of June 2009 (NAICS manufacturing: +3.8%, to 62.6%). The operating rate for durable manufacturing increased 3.1PP in May to 57.1% but remained below its 2009 low (wood products: -0.2%). Capacity utilization for nondurables rose 1.4PP to 68.5%, slightly below its 2009 low (paper products: -0.1%). 

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Capacity at the all-industries level edged up 0.1% (+1.7 % YoY) to 142.8% of 2012 output. Manufacturing (NAICS basis) rose fractionally (+0.1% MoM; +1.2% YoY) to 140.7%. Wood products: +0.2% (+3.5% YoY) to 171.1%; paper products: 0.0% (-0.2 % YoY) to 109.6%.

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.