The Federal Reserve Board said that industrial production increased 0.3 percent in June, an improvement from the flat reading of May and decline of 0.3 percent in April. June’s increase occurred mainly in the mining and manufacturing sectors, with utility production down for the third straight month. On an annual basis, industrial production is up 2.0 percent, representing a slight acceleration from the 1.6 pace observed last month.
For manufacturers, production rose modestly in June, up 0.3 percent and building on the 0.2 percent gain of May. The sector’s production has risen 1.8 percent over the past 12 months, a marginal pickup from the 1.7 percent increase observed last month. Capacity utilization also edged somewhat higher, up from 77.7 percent in May to 77.8 percent in June. Still, this was below the 78.2 percent utilization rates seen in February and March, and it is clear that manufacturing production levels remain well below the rates that we would like see.
Looking specifically at the sectors, durable goods production was up 0.5 percent in June, with nondurable goods output unchanged. Sectors with the fastest growth in production for the month included machinery (up 1.5 percent), miscellaneous durable goods (up 1.4 percent), textile and product mills (up 1.4 percent), motor vehicles and parts (up 1.3 percent), nonmetallic mineral products (up 0.9 percent), and food, beverage and tobacco products (up 0.8 percent).
In contrast, manufacturing segments with declining production in June included petroleum and coal products (down 1.1 percent), paper (down 0.9 percent), printing and support (down 0.9 percent), furniture and related products (down 0.7 percent), aerospace and miscellaneous transportation equipment (down 0.6 percent), and wood products (down 0.6 percent).
In short, the industrial production data come in largely as expected for the month of June, with modest gains in manufacturing output. While it is good to see that manufacturing activity has increased for two straight months, it is hard to ignore the fact that production in the sector is up just 0.4 percent in the first six months of the year. Weakened domestic and global demand have limited growth in new orders and shipments so far in 2013, and if we are to get a better second half (as is widely expected), we would need to see a pickup in sentiment and worldwide fundamentals.
Once again, this is a good time to remind policymakers to adopt pro-growth strategies so that we can get the manufacturing sector humming once again. Instead of annual growth in production of roughly two percent, we should strive for that double that pace or more.