Industrial production jumped 0.6% in June vs. an Econoday consensus of +0.4%. Is this a turn or just more volatility?
Vehicles held down industrial production in May but not in June, making for a big 0.6 percent gain that is just outside Econoday’s high-end estimate. The production of motor vehicles & parts surged 5.9 percent in June following a 4.3 percent drop in May. Year-on-year, this component tops the list with 7.8 percent growth compared to only 0.4 percent growth for manufacturing as a whole. Only due to vehicles, manufacturing managed to put in a good showing in June, up 0.4 percent on the month to reverse a revised 0.3 percent decline in May.
Headline production also got a big boost from utilities where output rose 2.4 percent in the month. Mining output, which is down 10.5 percent year-on-year, posted a second straight small gain, at plus 0.2 percent which is promising and follows the recovery in energy and commodity prices.
Looking at details deeper in the report, the output of business equipment rose a solid 0.7 percent but the year-on-year rate, in what is definitive evidence of weakness in business investment, is in the negative column at minus 0.6 percent. The output of consumer goods, up 1.6 percent on the year, rose 1.1 percent in the month in what is another good showing in this report.
The second quarter had been looking soft before this report and especially this morning’s retail sales report. A June bounce in the factory sector, facing global weakness and unfavorable currency appreciation, may not extend much into the third quarter but it may make a difference in the final readings of the second quarter.
Industrial Production and Capacity Utilization
Let’s tune into the Fed G.17 report on Industrial Production and Capacity Utilization for more details and a chart.
Industrial Production and Capacity Utilization: 2016 Summary
February, March, and May were negative. January, April, and June were up. Volatility in this series is the norm. April was revised slightly lower and May slightly higher. Average it all out and things do not look so great. Year-over-year numbers are -0.7%.
Industrial Production 1968-Present
Has Manufacturing Turned?
Part of this month’s bounce was a rebound in autos. Another part was utilities.
Here’s a key line from the report “The output of manufactured goods other than motor vehicles and parts was unchanged. The index for utilities rose 2.4 percent as a result of warmer weather than is typical for June boosting demand for air conditioning.”
Mike “Mish” Shedlock