U.S. Industrial Production Up 0.6% in June
WASHINGTON—U.S. industrial output rose in June, another sign the once-battered domestic manufacturing sector may be on the mend heading into the second half of the year.
Industrial production, a measure of everything made by factories, mines and utilities, rose a seasonally adjusted 0.6% in June, the Federal Reserve said Friday. Economists surveyed by The Wall Street Journal had forecast a 0.4% rise.
The last time it jumped at that rate was nearly a year ago, in July 2015, and the last time it increased by more was November 2014.
June saw a rise in motor vehicle and parts production, a volatile category that had dipped in May. Mining, which includes energy production, registered a small increase for the second straight month, welcome news for the beleaguered sector.
The headline index was in part lifted by a 2.4% monthly rise in utilities output, as June's warmer-than-usual weather had Americans turning up the air conditioning.
Still, the increase comes alongside several other encouraging signs for U.S. industry. The Institute for Supply Management said its index hit a 16-month high in June, with strength in new orders, production and even exports. Domestic and global oil prices firmed in May and June near $50 a barrel, after dipping below $35 in the beginning of the year.
Overall manufacturing output rose 0.4% in June, led by a jump in the production of motor vehicles and parts. However, other non-auto output was unchanged from May.
That last point left some economists skeptical that manufacturing was on a true upswing.
"Core manufacturing, that segment that excludes both vehicles and high technology, has gone nowhere officially for three straight months, and virtually nowhere for the past year," said Michael Montgomery, U.S. economist at IHS Global Insight. He added "It will take at least a magnifying glass to find any movement" in core manufacturing next year, other than "noise" coming from the auto and high-tech sectors.
Mining production rose 0.2%, the second increase after an eight-month stretch of declines. The sector had been in free fall amid a nearly two-year drop in commodity prices, which led energy companies to slash investment and lay off thousands of workers.
Capacity use, a measure of how much industries are making as a share of potential output, rose 0.5-percentage point to 75.4%. The rate is 4.6 percentage points below the historical average, suggesting there is still room for the economy to ramp up, should firms feel more confidence in future demand.
Overall industrial production was down 0.7% in the 12 months through June. Manufacturing output is 0.4% above its June year-ago level, but on a quarterly basis has fallen 1% in the second quarter from the same period a year ago. Utility output is up 0.5%. Mining output is still on the path to recovery, down 10.5% from June 2015.
The industrial production index peaked in November 2014 but has failed to regain that level as the mining sector collapsed and manufacturing broadly leveled off.
Factories have been constrained by a strong dollar and weak overseas demand for many products. But consistent domestic appetite for autos and trucks had kept manufacturing from collapsing, although it is unclear if that demand will last through the second half of the year.
Friday's industrial production report is the last one before the July 26-27 meeting of Federal Reserve officials. Fed Chairwoman Janet Yellen has been concerned about the lack of business investment, which has weighed on demand for long- lasting factory-made goods and heavy machinery. The Brexit vote at the end of June is likely to increase global economic uncertainty in the near term, potentially further discouraging business spending.
The Federal Reserve's report on industrial production and capacity utilization can be accessed at http:// www.federalreserve.gov/releases/g17/Current
Write to Anna Louie Sussman at anna.sussman@wsj.com
Read more: http://www.nasdaq.com/article/us-industrial-production-up-06-in-june-20160715-00353#ixzz4EVW1Apy6
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