Implications: Another lackluster report on overall industrial production, but the details are consistent with continued plow horse growth. Output at factories, mines, and utilities was unchanged in May as utilities held down the overall figure. Manufacturing production rose 0.1% (0.2% including revisions to prior months). Production is up only 1.6% over the past year and down at a 0.8% annual rate over the past three months. But we do not expect this to last as the housing recovery is still in its very early stages and demand for autos and other durables remains strong. The auto sector has led the manufacturing gains, up 6.7% in the past year, but even manufacturing outside the auto sector has done OK, up 1.4% in the past year. We expect the gap between those two growth rates to narrow considerably in the year ahead, with slower growth (but still growth!) in autos and faster growth elsewhere in manufacturing. Capacity utilization fell to 77.6% in May, not far off from the average of 79.0% in the past 20 years. Continued gains in production should push capacity use higher, which means companies will have an increasing incentive to build out plant and equipment. Meanwhile, corporate profits and cash on the balance sheet are at record highs, showing they have the ability to make these investments.
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Posted on Friday, June 14, 2013 @ 10:23 AM
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