Industrial Production Softening, Capacity Galore

Industrial production (output) was reported with a soft 0.2% gain in June, and May’s number was revised down to a gain of 0.5% from a preliminary report of 0.6%. Bloomberg was projecting a 0.4% gain.

Capacity utilization (potential output ratio) came in at only 79.1%, under the 79.2% consensus estimate from Bloomberg. Manufacturing activity was up by only 0.1% in June, versus a lower revision to +0.4% (+0.6% preliminary) in May.

This is interesting when you consider that unemployment is improving, and when we are supposed to be in the midst of a snap-back recovery from a poor first-quarter gross domestic product figure of -2.9%.

Here is a partial breakdown by segment for production:

• Apparel and leather production was down 1.3%.
• Food, beverage and tobacco products fell 0.6%.
• Mining was up 0.8%, after a 1.1% rise in May.
• Utilities fell 0.3%, after falling 0.4% in May.
• Ex-auto manufacturing rose 0.2%, versus a 0.3% gain in May.
• Durable goods rose 0.4% in June (an annual rate of 8.8% in the second quarter).
• Non-metals mineral products rose 1.0%.
• Non-durable goods fell by 0.3%.
• Output of petroleum products and coal products was down 2.7% (listed partially from a major refinery disruption).

If you use June as a benchmark for the end of the quarter as we do, manufacturing production was up 6.7% on an annualized basis, after rising 1.4% in the first quarter. So even with these reports looking a tad soft, it just means that the growth in the second quarter might not be quite as robust as economists were hoping just a week or two ago.