Wednesday, 15 of August of 2018

Economics. Explained.  

Industrial Production

July 17, 2018

Industrial production rose 0.6% in June after having declined 0.5% in May.   Production fell sharply in May as the result of a fire at  Michigan parts factory that disrupted production of Ford Motor’s F-series pickup trucks but then rebounded in June.  During the past year industrial production has risen 3.9%.  A growth rate of that magnitude was last seen in late 2014.  So despite monthly wiggles, production continues to trend upwards.

Breaking industrial production down into its three major sub-components,  the Fed indicated that manufacturing production (which represents 75% of the index) rose 0.8% in June after having declined 1.0% in May.  The distortions in both months were caused by the fire mentioned earlier.  Manufacturing ex autos fell 0.4% in May and then climbed by 0.3% in June.  During the past year  factory output has risen 1.9% (red line, right scale).  The factory sector is gathering momentum.

Mining (14%) output rose 1.2% in June after having climbed 2.2% in May.  Over the past year mining output has risen 12.9%.  Most of the recent upturn in mining has been concentrated in oil and gas drilling activity.  Oil and gas drilling rose 2.9% in June after having jumped 3.9% in May and 3.0% in April.     Over the course of the past year oil and gas well drilling has risen 11.4%.  However, in the past three months that figure has climbed to a 40.4% pace.  The year-over-year increases will begin to turn upwards next month.

Utilities output fell 1.5% in June after having declined 0.7% in May.  During the past year utility output has risen 5.0%.

Production of high tech equipment increased 1.4% in June after having been unchanged in May.  Over the past year high tech has risen 7.4%.   Thus, the high tech sector sector appears to be on a roll. This is an indication that the long slide in nonresidential investment has come to an end which would, in turn, signal an upturn in productivity growth.

Capacity utilization in the manufacturing sector rose 0.6% in June to 75.5%.  It remains below the 77.4% that is generally regarded as effective peak capacity.  However, factory owners will soon have to spend more money on technology and re-furbishing or expanding their assembly lines to boost output.

Stephen Slifer


Charleston, SC

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