Industrial Production: The Recession that Wouldn’t
The monthly Industrial Production release came in healthy and keeps the “no landing” scenario in play.
The Industrial Production and Capacity Utilization numbers push back on some of the Manufacturing survey weakness seen for so many months as Cap Ute numbers ticked up after two softer months.
Manufacturing is certainly not “hot” with capacity utilization in both Durables and Nondurables running below long-term averages.
The more volatile Utilities line offered more support to the headline number, but 4 of the 5 largest Durable lines also ticked higher led by Motor Vehicles.
The above chart updates the busy Capacity Utilization lines across the major groupings published monthly. The table includes long-term averages (1972-2022) and past highs and lows for frames of reference. Below we break out the major sectors and subsector and the largest Durable and Nondurable weightings for some useful indicators across the bellwether industry groups.
As a reminder, we like to use the capacity utilization (“cap ute”) numbers since the concept of pricing power and run rates vs. capacity is more intuitive in a market very focused on where pricing power kicks in and how companies try to move the needle on their theoretical breakeven volumes.
As we look at the table above, we see Total Industry higher, Total Manufacturing higher, and Utilities and Mining both higher. That is a positive report even if it is only 1 month. We see both Durables and Nondurables higher even if only slightly for Nondurables. That sums up what looks to be another month of pushing back on those calling for a sharper Manufacturing pullback. Below average utilization will keep you cautious on getting too optimistic with UST rates higher and the great “lagging effect” debate ongoing.
The above chart gets into the larger industry line items, and the balance is overwhelmingly higher with 4 of 5 largest Durables lines higher and Autos notably so. We see a small downtick in Fabricated Metals. In Nondurables, the Chemicals line is flat but comfortably above the long-term average. We see a slight decline in Food, Beverage, and Tobacco with that grouping below the long-term average.
Manufacturing has had weaker survey numbers for a while, but the capacity utilization band has been narrowed in total and numerous issuers have posted constructive earnings with few major industry flags. The inventory cycles in the fall will bear close watching.
See also:
Industrial Production, Capacity Utilization: A Mild Fade 7-18-23