The Federal Reserve Board said that industrial production was unchanged in July. After increasing by 0.2 percent in June, the decline in July was a bit of a disappointment, as the consensus expectation had been for at least similar growth. While much of the conversation in the past couple weeks has been about improvements in production data in the summer months, it is clear that we are still not where we would like to be with this data. Over the course of the past 12 months, industrial production has risen just 1.4 percent, a deceleration from the 2.0 percent pace suggested in the last report.
For manufacturers, production was off by 0.1 percent in July, reversing the 0.3 percent and 0.2 percent gains of May and June, respectively. As with the composite figure, manufacturing activity continues to be sub-par, with a year-over-year rate of only 1.3 percent. Ideally, we would like to see manufacturing output rise at least 4 percent or more on an annual basis, so this data illustrate the challenges that the sector has experienced over the course of the past year.
Manufacturing capacity utilization (NAICS) also edged somewhat lower, down from 76.6 percent in June to 76.4 percent in July. This continues a downward trend in overall manufacturing utilization year-to-date, as the rate had been 77.1 percent in December.
Looking specifically at the sectors, nondurable goods production was flat, with durable goods output down 0.2 percent. In all, 12 of the 19 major sectors had declining production numbers in July. Sectors with the fastest growth in production for the month were primary metals (up 2.6 percent), petroleum and coal products (up 2.0 percent), aerospace and miscellaneous transportation (up 0.8 percent), and apparel and leather (up 0.7 percent).
In contrast, manufacturing segments with declining production in July included motor vehicle and parts (down 1.7 percent), printing and support (down 1.2 percent), and machinery (down 1.0 percent), among others.
Overall, the industrial production data show that there continues to be softness in the manufacturing sector. While there has been a sense that manufacturers have become more optimistic in the summer months, these data show that manufacturing output is growing at a stubbornly slow pace, essentially flat (up just 0.1 percent) in the first seven months of 2013 and rising only 1.3 percent over the course of the past year.
Manufacturers by-and-large are cautiously positive about the second half of 2013, and for this to happen, we would need to see a significant pickup in demand and production. The domestic and global economy appears to be improving overall, but these gains have been very modest at best. With that in mind, we need to ensure that policymakers consider pro-growth strategies that will allow the manufacturing sector to flourish once again.
Chad Moutray is the chief economist, National Association of Manufacturers.
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