Weekly Economic Trends and Indicators
The Headline:
Last week, the Federal Reserve released their monthly data on industrial production and capacity utilization in the U.S. Industrial production increased by 0.6% (seasonally adjusted) in June. For the twelve months ending in June, industrial production was up 1.6%.
Capacity utilization was 78.8% in June which was approximately equal to the long-term (1972-2023) average of 78.7%. Capacity grew at a rate of 1.4% over the last twelve months.
The Details:
Industrial production grew fastest for both June and the last twelve months in the utility industry (2.8% for the month and 7.9% for the year). Manufacturing industrial production grew slightly less (0.4% for the month and 1.1% for the year) than the overall growth rate, with consumer goods seeing the largest increase (1.0% for the month and 2.8% for the year) among the manufacturing categories. Construction and mining both saw modest declines over the year.
Manufacturing capacity utilization stood at 77.9% in June, slightly below its long-term average of 78.3%. Capacity utilization in the utility sector was 73.8% in June, well below its long-term average of 84.5%.
Within the manufacturing sector, chemicals, computer and electronic products, and motor vehicles and parts have seen the fastest growth in recent years. Machinery manufacturing (an area which is particularly important to the Quad Cities area) had the second highest capacity utilization rate in June (80.7%) among the manufacturing categories.
The Context:
The big picture to keep in mind when looking at the industrial production and capacity utilization statistics is that growth has essentially stalled overall since about 2014. Manufacturing industrial production peaked in 2007 at the start of the financial crisis and has never regained that level. However, it has not lost significantly overall either. The growth of the last couple years simply regained what was lost during the COVID-19 recession, but very little more.
Yet this does not mean that every industrial sector has been flat. Selected high-technology industries (accounting for about 2% of all manufacturing) have grown at rates in the high single digits for several years now. Energy production (27% of industrial production) is also growing faster than average.
Furthermore, the high capacity utilization rate in certain sectors, such as machinery, suggests that there is room to grow in the future. As the present political and interest rate uncertainty resolves, and particularly if the dollar were to weaken on the global market, we should expect greater expansion in export-oriented and high-tech manufacturing. The Quad Cities’ leadership in advanced manufacturing positions us well for the next phase of growth.
Next week: 2nd Quarter GDP
