June Industrial Production

Industrial production increased 0.4 percent in June after falling a revised 0.2 percent in May according to the latest data from the Federal Reserve.  Manufacturing managed to make up most of its 0.7 percent loss from last month by gaining 0.7 percent in June.  Mining increased 0.7 percent as well after being flat in May.  Utilities declined 1.9 percent, but that is coming off of the previous month’s surge of 2.8 percent.
 
The improvement is welcome, but this indicator has been alternating between gains and losses since March after ten consecutive positive months.  Durable goods manufacturing rose 0.8 percent.  This increase in the output of goods expected to last longer than three years was assisted by auto manufacturing’s1.9 percent jump.  It will be interesting to see if carmakers continue to pick up the pace of production in July since retail sales of automobiles were negative in June.  A buildup of inventories may discourage a faster production schedule.  Nondurable goods made up some of May’s lost ground in June by increasing 0.5 percent after falling 0.7 percent.

Capacity utilization was mixed.  More capacity as a percentage of the total was used in June, but this is after May’s statistic was revised lower.  Currently the country is using 78.9 percent of its capacity.  This is a 0.2 percent improvement from May’s 78.7 percent that was originally calculated as 79 percent.  For perspective, the long-run average is 80.3 percent.
 
Industrial Production is highly cyclical and worth watching as the business cycle runs its course.  The Federal Reserve calibrates this indicator by pegging industrial production in 2007 at 100.  June’s reading was 97.4, so even as manufacturing has led the recovery since the end of the last recession in June of 2009, it has yet to reach the levels seen before the economy soured.  This is just another illustration of how slowly we are recovering from the banking crisis led recession.  Unfortunately, with important things like retail sales easing and many of our major trading partners experiencing difficulties, this indicator may not fully recover before the next downturn begins.      (by C. Cox)