May Industrial Production

The Federal Reserve’s industrial production report showed no growth in the output of physically made goods for the month of May. This flat month follows April’s revised decline of 0.4 percent; the initial tally was a decline of 0.5 percent. The second quarter is off to a slow start.

The internals of the release were mixed. Manufacturing managed to increase 0.1 percent, but that follows declines in each of the previous two months. Mining output was 0.7 percent higher after climbing 1.1 percent in April. Utilities were the big drag for the month. They fell 1.8 percent, and that is on the heels of a 3.2 percent decline in the prior period.

Capacity utilization edged lower in May. This measures the proportion of capacity being used during the month. The current estimate is 77.6, down from 77.7. This is a difficult concept to measure so a small move down is not an attention getter here at Atlas. Should it persistently change in one direction, we will begin to take note. The take away for now is that the proportion is below the long-term average of 80.2, so it is not suggesting that the country’s physical output is being limited by its capacity.

The central bank, which conveniently produces this indicator, may be perturbed by the recent figures. Despite all of the efforts to jumpstart the economy, America’s physical output is not responding very robustly. Nonetheless, housing and financial asset prices have continued to grow. This may suggest the central bank’s actions are not finding their way into all the parts of our economy where assistance would be most beneficial. (by C. Cox)