July 2020 Industrial Production, Capacity Utilization and Capacity

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Total industrial production (IP) rose 3.0% in July (+3.0% expected) after increasing 5.7% in June; even so, the index in July was 8.4% below its pre-pandemic February level. Manufacturing output continued to improve in July, rising 3.4%. Most major industries posted increases, though they were much smaller in magnitude than the advances recorded in June. The largest gain in July—28.3%—was registered by motor vehicles and parts; factory production elsewhere advanced 1.6%. Mining production rose 0.8% after decreasing for five consecutive months. The output of utilities increased 3.3%, as unusually warm temperatures increased the demand for air conditioning. At 100.2% of its 2012 average, the level of total industrial production was 8.2% lower in July than it was a year earlier.

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Industry Groups

Manufacturing output increased 3.4% in July, but it was still about 8% below its pre-pandemic February level (NAICS manufacturing: +3.4% MoM; -7.5% YoY). The index for durable manufacturing rose 5.5% in July. In addition to the large advance for motor vehicles and parts, increases of more than 6% were recorded by aerospace and miscellaneous transportation equipment and by miscellaneous manufacturing (wood products: +2.5%). Substantial gains in the past three months have pushed the output of motor vehicles and parts to nearly its February level. The index for nondurables rose 1.3% in July, with gains of more than 3% for textile and product mills, for printing and support, and for petroleum and coal products (paper products: -1.1%). The output of other manufacturing (publishing and logging) increased 1.5%.

The output of utilities rose 3.3% in July, largely reflecting strength in electric utilities. Mining output increased 0.8%. Gains were concentrated primarily in crude oil extraction and coal mining but also were recorded by most other types of mining. In contrast, the index for oil and gas well drilling fell 8.0% and was about 70% below its year-earlier level.

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Capacity utilization (CU) for the industrial sector increased 2.1 percentage points (PP) in July to 70.6%, a rate that is 9.2PP below its long-run (1972–2019) average but 6.4PP above its low in April.

Manufacturing CU was 69.2% in July, 9.2PP higher than its trough in April and 5.5PP above its recession trough of June 2009 (NAICS manufacturing: +3.4%, to 69.8%). The operating rates for durable and nondurable manufacturing increased to 68.1% and 71.5%, respectively. The rate for durables was about 14PP above its April low but still about 7PP below its pre-pandemic February level (wood products: +2.5%); the rate for nondurables has risen 4.2PP since April but was still about 5PP below February (paper products: -1.1%). The operating rate for mining rose to 73.5% in July. However, a downward revision to crude oil extraction in May left the utilization rates for mining in May, June, and July lower than any previous rates in the history of the series (since 1967).

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Capacity at the all-industries level was unchanged MoM (+0.8 % YoY) at 142.0% of 2012 output. Manufacturing (NAICS basis) was also unchanged (+0.6% YoY) to 140.1%. Wood products: 0.0% (+2.0% YoY) at 169.7%; paper products: -0.1% (-0.5 % YoY) to 109.2%.

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.