September 2020 Industrial Production, Capacity Utilization and Capacity

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Total industrial production (IP) fell 0.6% in September (+0.6% expected), its first decline after four consecutive months of gains. The index increased at an annual rate of 39.8% for the third quarter as a whole. Although production has recovered more than half of its February to April decline, the September reading was still 7.1% below its pre-pandemic February level. Manufacturing output decreased 0.3% in September and was 6.4% below February's level. The output of utilities dropped 5.6%, as demand for air conditioning fell by more than usual in September. Mining production increased 1.7% in September; even so, it was 14.8% below a year earlier. At 101.5% of its 2012 average, total industrial production was 7.3% lower in September than it was a year earlier.

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Industry Groups

Manufacturing output decreased 0.3% in September, but it advanced at an annual rate of 53.7% in the third quarter (NAICS manufacturing: -0.3% MoM; -5.7% YoY). The index for durable manufacturing fell 0.5% in September. Increases for primary metals, for fabricated metal products, and for aerospace and miscellaneous transportation equipment were more than outweighed by decreases elsewhere; most notably, the indexes for computer and electronic products and for motor vehicles and parts fell more than 2½% (wood products: -0.6%). The index for nondurables was unchanged, as gains for textiles and product mills, for printing and support, and for chemicals were offset by declines for petroleum and coal products, for apparel and leather, and for paper (-0.4%). The output of other manufacturing (publishing and logging) decreased 0.5%.

The index for utilities moved down 5.6% in September, with a drop in the output of electric utilities more than offsetting an increase for natural gas utilities. Mining was little changed for the third quarter as a whole but increased 1.7% in September, boosted by an increase in oil and gas extraction; in addition, oil and gas well drilling edged up following six consecutive months of declines.

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Capacity utilization (CU) for the industrial sector decreased 0.5 percentage point (PP) in September to 71.5%, a rate that is 8.3PP below its long-run (1972–2019) average but 7.3PP above its low in April.

Manufacturing CU was 70.5% in September, 10.4PP higher than its trough in April but still 7.7PP below its long-run average (NAICS manufacturing: -0.3% MoM, to 71.1%). The operating rate for durables decreased 0.4PP to 69.4%, and the rate for nondurables was unchanged at 72.9%. Capacity utilization for durables was 15.5PP above its April low but still 5.4PP below its pre-pandemic February level (wood products: -0.6% MoM). The rate for nondurables has risen 5.3PP since April but was still 3.5PP below its February level (paper products: -0.4% MoM). The operating rate for mining moved up to 77.6% in September, while the rate for utilities fell to 70.4%.

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Capacity at the all-industries level was essentially unchanged MoM (+0.4 % YoY) at 141.9% of 2012 output. Manufacturing (NAICS basis) was also unchanged (+0.2% YoY) at 140.1%. Wood products: 0.0% (+1.3% YoY) at 169.7%; paper products: -0.1% (-0.6 % YoY) to 109.0%.

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.