Heavy manufacturing and industrial production still on downhill track

August 15, 2024

Industrial production dropped -0.6%, the largest decline since January. The consensus forecast was for production to slide -0.1%. July’s decline follows downwardly revised growth of 0.3% in June. With such lackluster performance, industrial production is now down -0.2% over the last year. Hurricane Beryl is estimated to have caused -0.3% of drag. Manufacturing and utilities placed a burden on production, while mining remained flat.

Manufacturing output slipped -0.3%. Consumer goods production was forced down by a 7% decline in automotive products manufacturing, the biggest decrease in nine months. Motor assemblies fell 1.4 million in July. Appliances also had a weak showing. Clothing acted as the main anchor for consumer nondurables, now down almost 11% year-over-year; retaining the title of worst annual performer. Consumer nondurables only bright spot was chemical products which are one of the biggest annual gainers.

Durable goods were led by machinery and computers, primary metals, furniture and electronic products. Interestingly, each of these seems to be catch-up production in July after negative growth in June. Nondurables expanded modestly on the back of paper and petroleum products, the latter expanding for eleven of the last thirteen months.

Utilities plummeted 3.7%, the largest decline since January 2023. Electric power generation pulled down the broader sector. Despite recording the second hottest July in 130 years, according to the National Oceanic and Atmospheric Administration, Hurricane Beryl forced the closure of production facilities and triggered power outages across the coast of Texas.

Manufacturing capacity utilization stepped down to 77.2%, below consensus and by more than one percentage point undershooting the long-run average. Semiconductor capacity utilization remained subdued compared to the previous three years' annual averages. New fabrication facilities coming online are the reason for low utilization figures. Once these new facilities are operational, expect to see normalized chip capacity utilization. Petroleum and coal products capacity utilization is running at a hot 93.5% as the US continues to set records for oil production.

Business equipment production slipped in consecutive months owing to a sharp decline in transit production. Information processing made a comeback after last month’s disappointment as businesses continue to invest in artificial intelligence initiatives. Defense and space equipment spending rose for the seventh straight month. Military spending remains a catalyst, up nearly 5% year-over-year.

Diffusion indices indicate that while more than half of industries declined in July, nearly 58% of industries were producing more than six months ago. That is the highest percentage since July 2022, just after the Federal Reserve (Fed) conducted its first rate hike of this cycle.