| Industrial Production |
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Released On 8/16/2011 9:15:00 AM For Jul, 2011
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Prior | Consensus | Consensus Range | Actual |
| Production - M/M change | 0.2 % | 0.5 % | 0.2 % to 1.0 % | 0.9 % | | Capacity Utilization Rate - Level | 76.7 % | 77.0 % | 76.7 % to 77.5 % | 77.5 % |
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Highlights
Manufacturing appears to be on the mend as production improved sharply in July and June was not as soft as earlier believed. Overall industrial production in July posted a 0.9 percent gain, following a 0.4 percent rise the prior month (originally up 0.2 percent). The latest figure topped analysts' forecast for a 0.5 percent boost.
By major industry, manufacturing showed significant improvement, advancing 0.6 percent, following rise of 0.2 percent in June (originally no change). The auto component finally made a comeback, jumping a monthly 5.2 percent after three consecutive declines including June's 0.9 percent decrease. Essentially, auto makers recovered from supply chain disruptions brought on by Japan's March earthquake and tsunami. And production was moderately healthy outside of autos. Excluding motor vehicles, manufacturing rose 0.3 percent, following a 0.2 percent rise in June.
Turning to other major sectors, utilities output rose 2.8 percent after increasing 0.8 percent in June. Mining output advanced 1.1 percent after growing 1.2 percent in June.
On a year-on-year basis, overall industrial production held steady at 3.7 percent in July.
Overall capacity utilization in July improved to 77.5 percent from 76.9 percent the prior month. The June number came in higher than the median estimate for 77.0 percent.
Today's industrial production report is probably the strongest argument so far that second half growth is improving from a sluggish first half.
On the news, equity futures rose but remained negative on disappointing news on second quarter growth in Europe.
The traditional non-NAICS numbers for industrial production may differ marginally from the NAICS basis figures.
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Market Consensus before announcement
Industrial production in June rebounded 0.9 percent after dropping 2.0 percent in May. Overall industrial production in June advanced a modest 0.2 percent, following a 0.1 percent dip in May. Manufacturing, however, was soft with no change after a 0.1 percent increase the month before. The auto component, depressed by Japanese-related supply shortages, fell 2.0 percent in June, following a 0.3 percent decrease the month before. Excluding motor vehicles, manufacturing rose 0.2 percent, following a 0.1 percent uptick in May. Mining output, the report's third component, grew 0.5 percent after May's 0.7 percent increase. Overall capacity utilization in June held steady at 76.7 percent. Looking ahead, a 0.3 percent boost in production worker hours (from the employment report) suggests a moderately healthy gain in July for the manufacturing component of industrial production.
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Definition
The Federal Reserve's monthly index of industrial production and the related capacity indexes and capacity utilization rates cover manufacturing, mining, and electric and gas utilities. The industrial sector, together with construction, accounts for the bulk of the variation in national output over the course of the business cycle. The production index measures real output and is expressed as a percentage of real output in a base year, currently 2007. The capacity index, which is an estimate of sustainable potential output, is also expressed as a percentage of actual output in 2007. The rate of capacity utilization equals the seasonally adjusted output index expressed as a percentage of the related capacity index.
Why Investors Care
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![[Chart]](showimage.asp?imageid=21240)
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The industrial sector accounts for less than 20 percent of GDP. Yet, it creates much of the cyclical variability in the economy.
Data Source: Haver Analytics
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![[Chart]](showimage.asp?imageid=21241)
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The capacity utilization rate reflects the limits to operating the nation's factories, mines and utilities. In the past, supply bottlenecks created inflationary pressures as the utilization rate hit 84 to 85 percent.
Data Source: Haver Analytics
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