Sunday, 25 of June of 2017

Economics. Explained.  

Industrial Production

June 15, 2017

Industrial production was unchanged in May after having jumped 1.1% in April.  Over the past year this series has risen 2.2% and is clearly on the upswing.

Breaking industrial production down into its three major sub-components,  the Fed indicated that manufacturing production (which represents 75% of the index) fell 0.4% in May after having surged by 1.0% in April. During the past year  factory output has risen 1.4% (red line, right scale).  It has clearly hit bottom.

Mining (14%) output rose 1.6% in May after having climbed by 1.5% in April.   Over the past year mining output has risen 8.3%.

Most of the recent upturn in mining has been concentrated in oil and gas drilling activity  which rose 3.8% in May after having increase 9.0% in April.  It has now risen for twelve consecutive months.  Over the course of the past year oil and gas well drilling has risen 100.5%.  The number of  oil rigs in operation continues to climb.

Utilities output  rose 0.4% in May after having risen 0.7% in April.

Production of high tech equipment was unchanged in May after having climbed by 1.3% in April.  Over the past year high tech has risen 7.0%.   The high tech sector sector appears to have gathered some momentum during the past several months. This may be an early indication that the long slide in nonresidential investment may be coming to an end which would, in turn, signal some upturn in productivity growth.

Capacity utilization in the manufacturing sector declined 0.3% in May to 75.5 after having jumped 0.8% in April.  It is still below the 77.5% that is generally regarded as effective peak capacity but it is beginning to close the gap.  Above that level the factory sector is running too hot and prices begin to rise.  While we are a  ways from that so-called danger level, the reality is that manufacturing capacity is growing by about 0.1% per month while manufacturing output is rising by about 0.4%.

Stephen Slifer


Charleston, SC

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