Industrial Production July 2017

America’s output of physically made goods rose for a second consecutive month in July 2017 according to Industrial Production figures produced by the Federal Reserve.  Rising 0.2 percent, this cyclically sensitive indicator decelerated from 0.4 percent in June.  Despite the monthly slowdown, its year over year tally reached 2.2 percent, the best level since January 2015.

Data beneath the headline were mixed.  While two of the three major industry groups were higher, manufacturing (the largest segment) declined 0.1 percent.  Autos hurt this component.  If vehicles are removed, manufacturing climbed an impressive 0.4 percent.  Mining added another 0.5 percent to its output, following gains of 1.0 percent and 2.0 percent in May and June respectively.  Utilities charged back with a surge of 1.6 percent after declining 1.2 percent a month earlier. 

Capacity utilization held steady, matching June’s 76.6 reading.  Over the past two months, our nation used the largest proportion of its potential since August 2015.  Notwithstanding the recent upward trend in capacity utilization, America is still using less than the average from 1972 through 2016 of 79.9 percent, so there is room for additional industrial output without needing capital investment or hiring.    Put another way, this segment represents an area of potential growth that shouldn’t require much in the way of upward pressure on prices.  Of course, adequate demand is needed before firms increase their output. 

Industrial production shows no signs of weakening.  This supports the notion that the current economic expansion is well footed and likely to continue.  In particular, the accelerating year-over-year tally is encouraging because it suggests an even more positive trend is developing.  Additionally, the low utilization indicates this segment of the economy is capable of adding even more to the overall output of the nation.