Industrial production continues to slow

Industrial production fell 0.5% in June, after a downwardly-revised drop of 0.5% in May. This month was well short of expectations for a flat June at 0%. After a strong April, that brings the second quarter to a 0.7% increase at an annual rate. Industrial production is now 0.4% below where it was one year ago.

A 2.6% drop in utility output and a 1.3% drop in consumer goods pulled the overall production index lower in June. The consumer goods index was led by consumer durables; appliances, furniture and carpeting fell 3.8% and automotive products fell 3.6%. Nondurables also fell on declines in clothing, energy and tobacco. Business equipment fell on the indexes for transit and industrial materials; there was an increase in information processing. Defense and space equipment posted gains. 

Construction posted a positive print of 0.3% -- the third month in a row for the index. Construction is the potential bright spot for industrial production moving forward as electric vehicle and computer chip plant construction continues and residential investment returns. Computers and electronics manufacturing has led a surge in construction spending since last year.

Overall manufacturing fell 0.3% after falling 0.2% in May; but April still kept the quarter buoyed at a strong 1.0% as motor vehicles and parts manufacturing jumped in the quarter. Vehicle dealers are beginning to see inventories rise again. Mining output was down as oil and gas well drilling fell but oil and gas extraction increased.

Notably, manufacturing capacity utilization was also down in June to 78%, 0.2 percentage points below its long run average. The easing of supply constraints has helped to cool inflation. Manufacturing activity is now down 3.5% at an annual rate, down from last month, and has been in and out of the negative since late last year.