June Industrial Production

America’s output of physically made goods ended the second quarter by decelerating from a month earlier according to the Federal Reserve’s Industrial Production report.  The indicator still managed to perform better from April through June than it did in the first quarter of 2014 even though its monthly growth slowed to 0.2 percent in June from a downwardly revised 0.5 percent (originally 0.6 percent) in May.  On a seasonally adjusted annualized basis, output grew by 5.5 percent in the second quarter versus 3.9 percent from January through March.

Two out of the three major industry groups grew in the period.  Manufacturing is by far the largest component of this indicator, and its growth was reluctant.  This industry grew by just 0.1 percent after the downwardly revised 0.4 percent tally (originally 0.6 percent) in May.  Mining output decelerated for the second month in a row falling from 1.1 percent a month earlier to 0.8 percent in June.  Utilities fell for the fifth consecutive month, dipping 0.3 percent after dropping 0.4 percent in May.

Capacity utilization was unchanged for the month.  The nation used 79.1 percent of its capacity in the period; it has been virtually at this level since March and is slightly below its long-term average run rate of 80.1 percent. In the last twelve months, firms have added 2.6 percent to their ability to produce everything from paperclips to airplanes.

Industrial production tends to move along with the business cycle, so seeing this indicator continue to improve is encouraging, especially after the gross domestic product (GDP) contraction in the first quarter.  If America’s output of physically made goods slowed in the second quarter, the prospects of getting a negative GDP figure later this week would have increased substantially, but for now it seems most likely that the number will fall between 1.5 to 2 percent.          (by C. Cox)