Manufacturing Activity Remains Well Below Pre-Lockdown Levels
Industrial production rose 3.0 percent in July following a surge of 5.7 percent in June and a 0.9 percent gain in May. However, the three consecutive months of gains were not enough to overcome the back-to-back declines of 4.3 percent and 12.8 percent in March and April, respectively. Over the past year, industrial production is down 8.2 percent and 8.3 percent below the pre-pandemic level in February.
Manufacturing output, which accounts for about 75 percent of total industrial production, rose 3.4 percent after a monthly record gain of 7.4 in June and an increase of 3.8 percent in May (see top chart). The three gains follow declines of 5.0 percent and 16.0 percent in March and April. The three consecutive gains still leave manufacturing output 7.7 percent below year-ago levels. With the manufacturing output index at 96.5 for July, output is about 8 percent below the 2018-2019 average index level (see bottom chart).
The gains in the manufacturing sector in July were widespread across nearly all major market and industry groups. Measured by market segment, consumer-goods production was up 4.6 percent in July, with consumer durables rising 14.6 percent and consumer nondurables gaining 2.0 percent. Consumer durable-goods production was led by a 27.9 percent jump in automotive products. Business-equipment production increased 5.0 percent in July while construction supplies rose 0.4 percent for the month. Materials production (about 46 percent of industrial activity) increased 2.2 percent for the month. Despite the gains in July, nearly every major segment and industry shows a decline from a year ago.
Total industrial utilization rose to 70.6 percent in July from 68.5 percent in June. That is well below the long-term (1972-2019) average utilization of 79.8 percent. Manufacturing utilization rose 2.3 percentage points to 69.2 percent, well below the long-term average of 78.2 percent and below the 2018-2019 average of 76.1 percent (see bottom chart). July data suggest that while manufacturing output is recovering, output and utilization remain weak and it may take substantial time before manufacturing returns to pre-pandemic levels.
Mining output posted a 0.8 percent rise for the month following five monthly declines in a row, while utilities output rose 3.3 percent in July. Over the past year, mining output is down 17.0 percent while utilities output is up 0.6 percent.
Lockdown policies to combat the spread of COVID-19 pummeled economic activity in March and April while the easing of restrictions in May, June, and July helped reverse some of the economic carnage. However, it will likely be a slow path back to pre-pandemic levels of activity for the manufacturing sector.
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.
