August 2016 Industrial Production, Capacity Utilization and Capacity

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Total industrial production (IP) decreased 0.4 percent in August (-0.2% expected) after rising 0.6 percent in July. Manufacturing output also declined 0.4 percent in August, reversing its increase in July; the level of the index in August is little changed from its level in March. Following two consecutive monthly increases, the index for utilities fell back 1.4 percent in August. Even so, the index was 1.7 percent above its year-earlier level, as hot temperatures this summer boosted the usage of air conditioning. The output of mining moved up 1.0 percent in August, its fourth consecutive monthly increase following an extended downturn; the index, however, was still about 9 percent below its year-ago level. At 104.4 percent of its 2012 average, total industrial production in August was 1.1 percent lower than its year-earlier level.

Industry Groups

Manufacturing output declined 0.4 percent in August; the index was also 0.4 percent below its level of a year earlier. In August, the production of nondurables moved down 0.2 percent, and the indexes for durables and for other manufacturing (publishing and logging) fell 0.6 percent and 0.7 percent, respectively. Many durable goods industries posted declines of nearly 1 percent or more, with the largest drop, 1.9 percent, recorded by machinery; wood products (-1.6%). Within nondurables, gains for food, beverage, and tobacco products and for paper (+0.8%) were more than offset by declines elsewhere; the largest decrease, 2.1 percent, was recorded by textile and product mills.

The index for mining moved up 1.0 percent in August, with a decline in coal mining outweighed by increases in the indexes for oil and gas extraction, for oil well drilling and servicing, and for metal ore and nonmetallic mineral mining. 

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Capacity utilization (CU) for the industrial sector decreased 0.4 percentage point in August to 75.5 percent, a rate that is 4.5 percentage points below its long-run (1972–2015) average.

Manufacturing CU decreased 0.4 percentage point in August to 74.8 percent, a rate that is 3.7 percentage points below its long-run average. The operating rate for nondurables moved down 0.2 percentage point; (paper: +0.9%). The rates for durables and for other manufacturing (publishing and logging) each declined 0.5 percentage point; (wood products: -1.9%). The operating rate for mining moved up 1.0 percentage point to 76.2 percent, while the rate for utilities decreased 1.3 percentage points to 80.4 percent. 

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Capacity at the all-industries level was unchanged (+0.4% YoY) at 138.2% of 2012 output. Manufacturing inched up +0.1% (+0.8% YoY) to 137.8%. Wood products extended the upward trend that has been ongoing since November 2013 when increasing by 0.4% (+4.7% YoY) to 168.1%. Paper edged down 0.1% (-1.0% YoY) to 116.6%.

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.