August 17, 2021 Reading Time: 3 minutes

Industrial production rose 0.9 percent in July, the ninth gain in the last ten months. The latest increase pushed total output closer to the February 2020 level. Over the past year, total industrial output is up 6.6 percent and is just 0.2 percent below February 2020 (see top of first chart). Manufacturing output – about 76 percent of total output – posted an even stronger 1.4 percent increase for the month. Manufacturing output is now above its February 2020 level (see top of first chart).

Capacity utilization shows similar results. Total utilization rose to 76.1 percent from 75.4 percent in June but remains slightly below the February 2020 level of 76.3 percent.  Manufacturing utilization rose 1.1 points to 76.6 percent and is now above the February 2020 level of 75.5 percent (see bottom of first chart). However, both total utilization and manufacturing utilization remain below their long-term averages (79.6 percent for total and 78.2 percent for manufacturing) and well below their 1994-95 highs (85.1 percent for total and 84.7 percent for manufacturing).

Mining output accounts for about 12 percent of total industrial output and posted a 1.2 percent increase in the latest month (see top of second chart). Over the last 12 months, mining output is up 12.1 percent.

Utility output, which is typically related to weather patterns and is also about 12 percent of total industrial output, decreased 2.1 percent for the month (see top of second chart). From a year ago, utility output is down 3.8 percent.

Among the key segments of industrial output, energy production (about 25 percent of total output) fell 0.5 percent for the month (see bottom of second chart) with declines in three of the five components. The oil and gas well drilling component posted a strong 6.1 percent gain for the month and is up 79.4 percent from a year ago. Total energy production is up 4.5 percent from a year ago.

Motor-vehicle production (about 5 percent of total output), one of the hardest-hit industries during the lockdowns, continues to be volatile as the industry struggles with a semiconductor chip shortage. Motor-vehicle production jumped 11.2 percent in July following a 5.9 percent drop in June, a 7.2 percent increase in May, and a 7.6 percent decline in April (see bottom of second chart). From a year ago, vehicle production is off 6.9 percent. Total vehicle assemblies rose to 9.70 million at a seasonally-adjusted annual rate. That consists of 9.40 million light vehicles and 0.30 million heavy trucks. Within light vehicles, light trucks were 7.67 million while cars were 1.73 million.

High-tech industries output was unchanged in July (see bottom of second chart) and is up 12.1 percent versus a year ago. High-tech industries account for just 2.2 percent of total industrial output.

All other industries combined (total excluding energy, high-tech, and motor vehicles; about 68 percent of total industrial output) gained 0.8 percent in July (see bottom of second chart) and are 8.1 percent above July 2020. 

Industrial output posted a solid gain in July, helped by a big gain in the volatile motor vehicle sector. While ongoing difficulties with labor, logistics, and materials shortages continue to be challenges for manufacturing, many of these issues may start to ease in the coming months and quarters, helping to reduce some of the upward pressure on prices. However, the recent surge in new Covid cases, most related to the Delta variant, does represent a risk to the outlook for industrial output.

Robert Hughes

Bob 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.

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