A newly released Federal Reserve report showed U.S. industrial production was largely unchanged in July, after gaining 0.2% in June. Advancements in defense and space equipment as well as increases in mining output were essentially offset by lower production of consumer durable goods diminished utilities output.
Following is a summary of the report:
The production of consumer goods decreased 0.5 percent in July after having increased 0.6 percent in June; in July. The production of durable consumer goods fell 1.5 percent; within consumer durables, automotive products posted a loss of 2.4 percent, while all other indices moved down between 0.5 and 1 percent. The output of non-energy nondurables decreased 0.4 percent, with losses in the indices for foods and tobacco, for chemical products, and for paper products. After having fallen in the previous three months, the output of consumer energy products moved up 0.3 percent, as increases in petroleum refining more than offset lower sales of electricity to residences.
The output of defense and space equipment advanced 1.0 percent in July. The increase in July was the first gain for the index since December 2012.
In July, the output of construction supplies advanced 0.5 percent for a second consecutive month. Meanwhile, the production of business supplies declined 0.7 percent.
The production of materials to be processed further in the industrial sector moved up 0.4 percent in July. The output of durable materials edged up 0.2 percent in July, as a decline for equipment parts was outweighed by increases for consumer parts and for other durable materials. The production of nondurable materials moved down 0.5 percent as a result of losses for textile, paper, and chemical materials. The output of energy materials advanced 1.2 percent on the strength of gains in oil and natural gas extraction; in July.
Manufacturing output declined 0.1 percent in July after having increased 0.3 percent in May and 0.2 percent in June. Specifically, the output of durable goods fell 0.2 percent in July. On the plus side, the primary metals category posted the largest gain among the major components of durables, 2.6 percent, while motor vehicles and parts recorded the largest loss, 1.7 percent. Capacity utilization for durable goods manufacturing fell 0.3 percentage point to 75.6 percent.
The index for nondurable manufacturing was unchanged in July for a second month in a row and was 0.9 percent above its level of a year earlier. Among the major components of nondurables, the production of petroleum and coal products advanced 2.0 percent, and the index for apparel and leather goods moved up 0.7 percent. Printing and support recorded the largest decrease in output, 1.2 percent, while the indices for food, beverage, and tobacco products and for textile and product mills both posted losses of around 0.5 percent.
Mining output moved up 2.1 percent in July following an increase of 1.0 percent in June. The gain in July reflected a large increase in oil and gas extraction. Meanwhile, the production of electric and gas utilities fell 2.1 percent, and their operating rate declined 1.6 percentage points to 76.2 percent.
Finally, capacity utilization rates in July for industries grouped by stage of process were as follows: At the crude stage, utilization increased 0.9 percentage point to 87.4 percent, a rate 1.1 percentage points above its long-run average; at the primary and semifinished stages, utilization declined 0.2 percentage point to 75.5 percent, a rate 5.5 percentage points below its long-run average; and at the finished stage, utilization moved down 0.5 percentage point to 75.6 percent, a rate 1.5 percentage points lower than its long-run average.
PMI INDEX MARCHES ON
While the July U.S. industrial production report reflected softening in manufacturing output, another key industrial barometer indicated a more positive sentiment. The Institute for Supply Management’s PMI index for July registered 55.4 percent,1 an increase of 4.5 percentage points from June's reading of 50.9 percent. What’s more, July's reading reflects the sixth month of growth, and the highest overall PMI™ reading, in the first seven months of 2013.
Of the 18 manufacturing industries, 13 are reporting growth in July in the following order: Furniture & Related Products; Textile Mills; Printing & Related Support Activities; Paper Products; Wood Products; Nonmetallic Mineral Products; Electrical Equipment, Appliances & Components; Computer & Electronic Products; Food, Beverage & Tobacco Products; Primary Metals; Transportation Equipment; Chemical Products; and Fabricated Metal Products.
The four industries reporting contraction in July are: Plastics & Rubber Products; Apparel, Leather & Allied Products; Machinery; and Miscellaneous Manufacturing.
According to Bradley J. Holcomb, CPSM, CPSD, chair of the Institute for Supply Management™ Manufacturing Business Survey Committee, a PMI™ in excess of 42.2 percent, over a period of time, generally indicates an expansion of the overall economy. Therefore, the July PMI™ indicates growth for the 50th consecutive month in the overall economy, and indicates expansion in the manufacturing sector for the second consecutive month.
“The past relationship between the PMI™ and the overall economy indicates that the average PMI™ for January through July (52.1 percent) corresponds to a 3.1 percent increase in real gross domestic product (GDP) on an annualized basis,” Holcomb explained. “In addition, if the PMI™ for July (55.4 percent) is annualized, it corresponds to a 4.1 percent increase in real GDP annually.”
Other highlights from the July PMI report: the new orders Index increased in July by 6.4 percentage points to 58.3 percent, and the production index increased by 11.6 percentage points to 65 percent. Meanwhile, the employment Index registered 54.4 percent, an increase of 5.7 percentage points compared to June's reading of 48.7 percent. Comments from those surveyed generally indicate stable demand and slowly improving business conditions, Holcomb added.
View the complete July U.S. industrial production report, along with historical graphs, at the Federal Reserve website. The July PMI Index report is available in its entirety from the Institute for Supply Management.
- A reading above 50 percent indicates that the manufacturing economy is generally expanding; below 50 percent indicates that it is generally contracting.