Manufacturing production increased 1.0 percent in July, its fastest pace since February’s post-weather rebound earlier in the year. The jump in output helped to lift the year-over-year pace of manufacturing production to 4.9 percent, its fastest annual rate since June 2012. As such, it illustrates the recover in output in the sector since the winter months, with the year-over-year pace up from 1.5 percent in January.
Meanwhile, manufacturing capacity utilization increased from 77.2 percent in June (and just 75.5 percent in January) to 77.8 percent in July. This suggests that utilization rates for manufacturers have nearly reached their pre-recessionary levels, with July’s rate the highest level since February 2008.
Looking at sectoral performance, durable and nondurable goods output were both higher, up 1.7 percent and 0.3 percent, respectively. The largest increase stemmed from motor vehicle production, which increased by a whopping 10.1 percent in July, recovering from being flat in June. On a year-over-year basis, motor vehicles and parts output has risen 21.9 percent. This reflected the sizable gain in 2014, but it was also a function of softness in 2013 due to the sector gearing up for a new model year.
Other sectors with notable increases in July included apparel and leather (up 1.8 percent), textile and product mills (up 1.7 percent), furniture and related products (up 1.4 percent), petroleum and coal products (up 1.3 percent), nonmetallic mineral products (up 1.0 percent), primary metals (up 1.0 percent), machinery (up 0.9 percent) and computer and electronic products (up 0.8 percent). In contrast, just 3 of the 19 major sectors had declining production for the month, and these were: miscellaneous durable goods (down 0.8 percent); food, beverage and tobacco products (down 0.3 percent); and plastics and rubber products (down 0.3 percent).
On a year-over-year basis, durable goods production has risen by a healthy 8.2 percent since July 2013, with nondurable goods output up 2.1 percent. The five sectors with the fastest growth over the past 12 months include: motor vehicles and parts (up 21.9 percent), furniture and related products (up 9.2 percent), machinery (up 8.3 percent), plastics and rubber products (up 7.4 percent) and nonmetallic mineral products (up 7.3 percent).
Meanwhile, overall industrial production rose 0.4 percent in July, equaling the increase seen in June. It was the sixth straight monthly gain in production, following January’s weather-induced decline. Since January, industrial output has risen 3.0 percent, with 5.0 percent growth year-over-year. Mining production increased 0.3 percent, but utility output continues to soften, down 3.4 percent for the month. Total capacity utilization increased from 79.1 percent in June to 79.2 percent in July, its highest rate since June 2008.
In conclusion, manufacturers continue to expand strongly in July, recovering from weaknesses earlier in the year. Moreover, surveys suggest optimism for the months ahead, including respondents from the Empire State Manufacturing Survey released this morning. Yet, manufacturing leaders have also been disappointed with the slow pace of growth in the first half of this year, and their upbeat sentiment about the second half remains is filled with caution. For that reason, policymakers should focus on those initiatives which will keep the economy growing moving forward.
Chad Moutray is the chief economist, National Association of Manufacturers.