June 2018 Industrial Production
Submitted by Atlas Indicators Investment Advisors on July 25th, 2018
Industrial production snapped back in June 2018 after falling 0.5 percent in May according to the Federal Reserve. This indicator, which measures all physically made goods (from rubber bands to robots), climbed 0.6 percent to close out the first half of this year; during the second quarter, it advanced 6.0 percent on an annualized basis, boding well for tomorrow’s gross domestic product figure.
Two of the three primary categories improved in the period. Digging deep, mining pulled out an increase of 1.2 percent; this was the fifth consecutive monthly gain of 1.0 percent or more and allowed this component to surpass its previous historical peak set in December 2014. Manufacturing rose 0.8 percent in the period and increased 1.9 percent during the second quarter; much of the largest category’s rebound resulted from a Michigan based auto parts supplier coming back online after a fire in May. Lastly, utilities’ output fell in 1.5 percent in June as waning demand for electricity outweighed gains in natural gas use.
Capacity utilization improved but remained below its long-run (1972-2017) average. Firms used 78.0 percent of their potential, a rise of 0.3 percentage points. This leaves 1.9 percentage points available for use before reaching the average, so inflationary pressures caused by an overused industrial base is unlikely in the foreseeable future. In the past year, capacity increased 1.5 percent, demonstrating businesses’ willingness to make capital outlays, a good sign for an economy.
Industrial production continues adding to a growing collection of evidence that America’s economy is healthy. Manufacturing is sensitive to the business cycle and has a positive slope to it. As long as this remains true, there is a high probability that American output is expanding.