After falling 0.2 percent in May, industrial production rose 0.4 percent in June, according to the Federal Reserve Board. At the same time, capacity utilization edged higher from 78.7 percent to 78.9 percent, essentially returning to the level observed in April. Given recent weaknesses in the economy, these gains exceeded expectations.
Of course, manufacturing has been one of the stronger components of industrial production of late, and this continued. Manufacturing production rebounded in June, up 0.7 percent after declining by 0.7 percent in May. Both durable and nondurable goods production were higher, up 0.8 percent and 0.5 percent.
In addition, the increases were across-the-board, with all but 4 of the 19 major manufacturing sectors seeing improved activity. Manufacturing capacity utilization rose from 77.8 percent to 78.2 percent.
Machinery (up 2.3 percent), motor vehicles (up 1.9 percent), computer and electronics (up 1.1 percent), and printing and support (up 1 percent) experienced the largest gains in monthly production in the manufacturing sector. The motor vehicles sector continues its tremendous ascent, with production of automobiles and parts up 26.3 percent since June 2011. Machinery and aerospace are the other two sectors with the greatest year-over-year gains, up 10.6 percent and 9.2 percent, respectively.
On the other hand, the four sectors with declining activity were apparel and leather (down 1.6 percent), primary metals (down 1.2 percent), electrical equipment and appliances (down 0.9 percent), and food and beverages (down 0.1 percent). Of these, only the apparel sector has seen its production decline on an annual basis, down 2.8 percent since last June.
These numbers stand in stark contrast to other surveys which show the economy and manufacturing activity slowing in the past couple months. Over the course of the past year, manufacturers have increased production by 5.6 percent, higher than the 5.2 percent year-over-year figure observed last month. Manufacturers remain cautiously optimistic about production in the second half of this year, as observed by the NAM/IndustryWeek Survey of Manufacturers and other surveys.
With that said, a number of headwinds continue to persist, with manufacturers continuing to worry about slowing global growth and fiscal and regulatory challenges domestically. See my op-ed with Dorothy Coleman on the fiscal cliff. For manufacturing production to continue to grow, we will need to address these structural challenges, or else we risk a slowdown.
Chad Moutray is chief economist, National Association of Manufacturers.