The Federal Reserve reported that industrial production was up 0.1 percent in May, up from being flat in April. Manufacturing production was up 0.4 percent, reversing a decline in the previous month, with a year-over-year increase of 3.7 percent. Manufacturers’ capacity utilization figures were up from 74.2 to 74.5, mirroring the industrial production trend.
Durable goods production increases have outstripped nondurables over the past year (up 6.7 percent and 1.4 percent, respectively). In May, the strongest gainers were furniture and related products (up 2.6 percent), petroleum and coal products (up 2.0 percent), nonmetallic mineral products (up 1.8 percent), machinery (up 1.7 percent), computer and electronic products (up 1.4 percent), and textile and product mills (up 1.4 percent). Motor vehicle and parts production was down 1.5 percent, reflecting continued supply disruptions due to the Japanese disaster earlier this year; however, this was an improvement from the 6.5 percent drop in April.
Meanwhile, the Empire State Manufacturing Survey from the Federal Reserve Bank of New York found that manufacturing output fell in its June survey, with the index for overall business conditions falling below zero to -7.8. New orders and shipments were down dramatically. In a series of special questions, 41 percent of respondents expected their workforce to increase over the course of the next year, which was down from a similar set of questions posed in January.
In general, the survey suggests that manufacturers in New York have a positive viewpoint of future business conditions, new orders, shipments and employment, but the indices for each of these has fallen over the past few months, suggesting deterioration in overall optimism.
In some ways, these two reports on production provide a mixed viewpoint from which to measure industrial output. While the Fed’s industrial production measures were higher, they also reflect the general weakness that we have seen in the second quarter of 2011 which has been seen in a number of other reports. Capacity utilization, for instance, is still not at the level that it was in February 2011, for instance, despite an increase in May.
The Empire State survey is the more pessimistic of the two, reflecting significant declines in production and lower expectations moving forward. Yet, with 41 percent of respondents suggesting higher employment over the next year and other measures of expectations generally positive, one could easily surmise a better second half of 2011 than what we are currently experiencing. Strong gains in durables in the most recent industrial production report, indeed, give me reasons for optimism, especially since it has been the sector which has been most hard hit in April and May overall.
Chad Moutray is chief economist, National Association of Manufacturers.
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