Weak utilities combined with soft manufacturing

September 16, 2025

Industrial production ticked up 0.1% in August, slightly more than expected, after dropping a downwardly revised 0.4% in July. A sharp 2.0% drop in utilities was offset by strength in motor vehicles and parts manufacturing, up 2.6%. The utilities sector has been running weaker this year even as residential electricity prices are notably higher. Industrial production has risen 0.9% year-over-year, down from 1.4% last month.

Durable goods manufacturing rose 0.2%; outside of the 2.6% increase in motor vehicles and parts, it dropped 0.1%. Furniture showed the largest declines, down 1.7%, as well as a 1.7% decline in home electronics. Importers that had bought ahead of tariffs are liquidating their inventories and may be showing up as lower orders. Nondurable goods increased 0.3% on a 2.5% increase in textile mills, the largest move since May 2024, while finished apparel and leather increased 1.4%. Apparel has been one of the hardest hit by changes in the de minimis exemption (a tariff exemption for small-value packages). That was eliminated in August.

Bucking the trend, business equipment dropped 0.1%, as a drop in industrial equipment offset increases in transit equipment. The index is still up 4.1% over the year. Defense and space equipment dropped 1.1%. Materials production edged up 0.1%, mainly on a 0.9% increase in consumer parts. Energy was flat; it has been a weak spot for two months; mining gained ground but did not offset the sharp drop in July. Deregulation in the industry has not been sufficient to offset the blow from tariffs and lower oil prices.

Capacity utilization ticked up in August to 76.8% but is still 1.4 percentage points below the long run average. Utilities capacity utilization moved lower to 68.6%, near the all-time low reached in March of this year and 4.1 percentage points below its long-run average.