Gains in Industrial Production Support a Positive Outlook

Industrial production jumped 0.6 percent in June, rebounding from a 0.5 percent drop in May. Over the past year, industrial production is up 3.8 percent, continuing a modest upward trend in growth (see chart). The gain helped push capacity utilization up 0.3 percentage points to 78.0.

Gains in industrial production were broad-based. Manufacturing accounts for about 75 percent of total industrial production and posted a 0.8 percent increase in the month. Within manufacturing, durable-goods production surged 1.6 percent while nondurable-goods production edged up by just 0.1 percent. Leading the durable-goods production were a 7.8 percent surge in motor vehicle production, a 1.5 percent increase in computers and electronic products, a 1.2 percent gain in wood products, and a 1.0 percent increase in aerospace equipment. Among nondurable-goods producers, petroleum- and coal-products production rose 0.6 percent, while chemicals products gained 0.3 percent.

Measured by market segment, consumer-goods production — about 28 percent of total production — rose 0.7 percent in June, with consumer durables up 3.8 percent and consumer nondurables down 0.1 percent. Business equipment — about 10 percent of production — rose 2.1 percent in June and is up 2.2 percent from a year ago. The monthly gain was boosted by a 5.9 percent surge in transit equipment. However, over the past year, transit equipment production is up only 0.4 percent versus the segment leader information processing equipment which gained 1.3 percent for the month and is up 5.0 percent over the past year.

Non-industrial supplies — about 15 percent of production — is being pushed higher by production of construction supplies. This is consistent with improving trends in residential construction as well as gains in nonresidential construction.

Material production — about 46 percent of output — rose 0.5 percent for the month and is up 5.4 percent from a year ago. The energy component has been a major source of volatility in this category particularly following the collapse of energy prices in mid-2014. The non-energy component rose 0.5 percent for the month and is up 1.9 percent from a year ago.

Today’s report from the Federal Reserve provides additional evidence of the broad-based strength in the economy. Along with a very robust labor market, high levels of consumer and business confidence, generally solid balance sheets for the private sector, and very strong readings from the AIER leading indicators index, the outlook for continued economic expansion remains favorable.

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Robert Hughes

Robert Hughes joined AIER in 2013 following more than 25 years in economic and financial markets research on Wall Street. Bob was formerly the head of Global Equity Strategy for Brown Brothers Harriman, where he developed equity investment strategy combining top-down macro analysis with bottom-up fundamentals. Prior to BBH, Bob was a Senior Equity Strategist for State Street Global Markets, Senior Economic Strategist with Prudential Equity Group and Senior Economist and Financial Markets Analyst for Citicorp Investment Services. Bob has a MA in economics from Fordham University and a BS in business from Lehigh University.