August 2020 Industrial Production, Capacity Utilization and Capacity

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Total industrial production (IP) rose 0.4% in August (+1.2% expected) for its fourth consecutive monthly increase. However, even after the recent gains, the index in August was 7.3% below its pre-pandemic February level. Manufacturing output continued to improve in August, rising 1.0%, but the gains for most manufacturing industries have gradually slowed since June. Mining production fell 2.5% in August, as Tropical Storm Marco and Hurricane Laura caused sharp but temporary drops in oil and gas extraction and well drilling. The output of utilities moved down 0.4%. At 101.4% of its 2012 average, the level of total industrial production was 7.7% lower in August than it was a year earlier.

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Industry Groups

Manufacturing output increased 1.0% in August. After falling 20.3% between February and April, factory production has rebounded; even so, in August it was still 6.7% below its February level (NAICS manufacturing: +1.0% MoM; -6.6% YoY). The index for durable manufacturing rose 0.7%, as a decline in the output of motor vehicles and parts was more than offset by broad-based increases for other durable goods industries (wood products: +1.4%). The index for nondurables rose 1.2%, with gains of more than 3% for apparel and leather and for plastics and rubber products (paper products: +0.4%). The output of other manufacturing (publishing and logging) increased 1.9%.

The index for utilities moved down 0.4% in August, with small decreases for both electric and gas utilities. Mining output fell 2.5% as a result of the drops in oil and gas drilling and extraction; coal and other types of mining posted gains.

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Capacity utilization (CU) for the industrial sector increased 0.3 percentage point (PP) in August to 71.4%, a rate that is 8.4PP below its long-run (1972–2019) average but 7.3PP above its low in April.

Manufacturing CU was 70.2% in August, 10.3PP higher than its trough in April but still 8.0PP below its long-run average (NAICS manufacturing: +1.0%, to 70.9%). The operating rates for durable and nondurable manufacturing increased to 69.4% and 72.4%, respectively. The rate for durables was 15.5PP above its April low but still 5.5PP below its pre-pandemic February level (wood products: +1.4%); the rate for nondurables has risen 5.1PP since April but was still 4.0PP below its February level (paper products: +0.5%). The operating rate for mining moved down to 74.5% in August, the second-lowest level in the history of the series after the 72.6% rate recorded in May of this year.

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Capacity at the all-industries level was essentially unchanged MoM (+0.6 % YoY) at 141.9% of 2012 output. Manufacturing (NAICS basis) was also unchanged (+0.4% YoY) at 140.1%. Wood products: 0.0% (+1.7% YoY) at 169.7%; paper products: -0.1% (-0.6 % YoY) to 109.1%.

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.