According to a report by the Federal Reserve on Tuesday, industrial production experienced a 0.5% decline in June. Most market groups saw declines, which were below the expected flat reading based on a survey of economists conducted by The Wall Street Journal. In May, production also fell at a revised rate of 0.5%, down from the initial estimate of a 0.2% decline. Capacity utilization decreased to 78.9% from a revised 79.4% in the previous month, marking a drop from its peak of 80.8% in September last year. Economists had predicted a 79.5% rate. The capacity utilization rate reflects the limits in operating the nation’s factories, mines, and utilities. The June level matches the capacity-in-use rate observed in December, and the last time the capacity utilization rate was lower was in October 2021.
Key Details
Specifically, manufacturing saw a 0.3% decrease in June following a 0.2% fall in the previous month. The output for motor vehicles and parts declined by 3%, after experiencing a 0.8% increase in the prior month. Excluding automobiles, total industrial output fell by 0.4%. Additionally, utilities output experienced a 2.6% decline in June, while mining output, including oil and natural gas, decreased by 0.2% following a 1.4% fall in the previous month.
Big Picture
For the second quarter, industrial output showed a 0.7% annual rate growth, primarily driven by a significant jump of 36.7% in auto production. However, this growth concealed weaknesses in other sectors. Mickey Levy, the chief economist for Asia and the U.S. at Berenberg Capital Market, stated in a note to clients that “slowing demand for manufactured goods, rising customer inventories, and elevated uncertainty over the outlook are pushing manufacturers to exercise caution and cut back on production.”
Market Reaction
As a result of the report, stock prices opened lower for DJIA (+0.16%) and SPX (-0.08%). In contrast, the yield on the 10-year Treasury note (TMUBMUSD10Y, 3.765%) fell to 3.78%.
