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"Industrial Production at a 12-Year Low... Capacity Utilization at an All-time Low…Not a Bad Report, Though"

Bottom Line

Industrial production fell 0.4% in June (or -13.6%, year-over-year [ y/y]). 

Manufacturing output fell 0.6% (-15.5%, y/y) 

Utility output increased 0.8% (-3.9%, y/y). Mining was off 0.5% (-10.4%, y/y). 

The operating rate for total industry fell to an all-time low of 68.0% (data start in 1967). 

The manufacturing rate sank to 64.6%, also an all-time low. 

For the quarter, industrial output fell at an 11.6% annual rate, better than the 19.1% first quarter plunge. 

The motor vehicle and parts sector was hit again by plant shutdowns due to GM’s and Chrysler’s bankruptcies and other automakers’ inventory adjustments, with output falling 2.6%.

Outlook

Industrial production fell for the 17th time in 18 months–to its lowest level since July 1998–as capacity utilization sank to an all-time low. The report was one filled with minuses. Utilities was the only major group posting a gain.

On balance, though, this was not a bad report. June’s drop in industrial production was the smallest decline in eight months. Moreover, the drop was smaller than expected. (The consensus and IHS Global Insight projected a 0.6% drop).

The high technology sector fell once again, sliding 1.0%, but that was smaller than May’s 2.6% decline. The automotive sector was a drag again, falling 2.6% on weak output because of GM and Chrysler’s shutdowns during bankruptcy. Core manufacturing retreated by 0.4%, again weak, but a far milder contraction than seen recently. Utility output climbed by 0.8% on a token rise in electricity production and a rebound in natural gas transmission.

The quarterly numbers tell the story of slowing declines. Total industrial production fell at 19.1% annualized rate in the first quarter and cut that rate of decline almost in half to -11.6% in the second quarter.

A major bounce in vehicle production when GM and Chrysler restart operations should push manufacturing and total industrial output into the black in the third quarter

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