EconoFACTS

July 18, 2023 | 09:56

U.S. Industrial Production (June) — Grinding to a Halt

Economist

Deputy Chief Economist, Head of U.S. Economics and Managing Director
Economics

Michael is part of the team responsible for forecasting and analyzing the North American economy and financial m... (Read more)

Michael Gregory , CFA

Deputy Chief Economist, Head of U.S. Economics and Managing Director
Economics

Michael is part of the team responsible for forecasting and analyzing the North American economy and financial m... (Read more)

Industrial production dropped 0.5% in June, which was much weaker than expected (the consensus call was for a flat result), and May was revised down to also show a 0.5% drop (it was -0.2% before).

Factory output fell 0.3% after a downward revised 0.2% drop in May (it as +0.1% before). Lower motor vehicle assembles drove most of the weakness, but manufacturing production was still down 0.1% excluding the sector. The latter mirrored mixed results across several industries (e.g., machinery -0.8%, computers & electronics +1.3%). Another indicator of broad-based net softness is the ISM’s production metric which fell to 46.7 in the month (the lowest level since December 2019 apart from a couple of months during the pandemic recession).

Elsewhere, mining output decreased 0.2% in June, despite higher crude oil production. Utilities output was down 2.6%, due to lower-than-normal electricity usage by air conditioners across the country (which was expected). The overall drop in industrial output pulled down the capacity utilization rate by 0.5 ppts to 78.9%, which is a 20-month low.

With June’s result, industrial production has dipped below year-ago levels for the first time since early 2021, when it was still reeling from pandemic-related restrictions. Now it’s the combination of rate hikes, QT along with tighter financial and credit conditions weighing on this part of the economy. We suspect this evidence of growth grinding to a halt will eventually be mirrored in the broader economy.

Table 1 - United States — Industrial Production

(month/month % change : s.a.)

Source: BMO Economics, Haver Analytics