Summary: US industrial output expands by 0.9% in July, more than expected; up 6.6% over 12 months; June figure revised down; “poised to reach all-time highs by early 2022”; capacity utilisation rate hit 76.1%, still short of February 2020’s 76.3%.
The Federal Reserve’s industrial production (IP) index measures real output from manufacturing, mining, electricity and gas company facilities located in the United States. These sectors are thought to be sensitive to consumer demand and so some leading indicators of GDP use industrial production figures as a component.
US production collapsed through March and April of 2020 but then began recovering in subsequent months.
According to the Federal Reserve, US industrial production expanded by 0.9% on a seasonally adjusted basis in July. The result was nearly double the 0.5% increase which had been generally expected and substantially higher than June’s 0.2% expansion after it was revised down from 0.4%. On an annual basis, the expansion rate slowed from June’s revised figure of 9.9% to 6.6%.
As Westpac economist Lochlan Halloway noted, “Industrial US production is poised to reach all-time highs by early 2022.”
The same report includes US capacity utilisation figures which are generally accepted as an indicator of future investment expenditure and/or inflationary pressures. Capacity usage had hit a high for the last business cycle in early 2019 before it began a downtrend which ended with April 2020’s multi-decade low of 64.2%. July’s reading rose from June’s figure of 75.4% to 76.1%, still short of February 2020’s 76.3%.
While the US utilisation rate’s correlation with the US jobless rate is solid, it is not as high as the comparable correlation in Australia.
