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    Manufacturing Output Falls For A Second Consecutive Month In June

    By Robert Hughes

    Total industrial production decreased 0.2 percent in June after being unchanged in May and rising 0.8 percent in April (see first chart). Over the past year, total industrial output is up 4.2 percent while the annualized rate is 2.5 percent over the last three months.

    Total industrial capacity utilization decreased 0.3 points to 80.0 percent from 80.3 percent in May but remains above the long-term (1972 through 2021) average of 79.6 percent.

    Manufacturing output – about 74 percent of total output – posted its second decline in a row, falling 0.5 percent for the month (see first chart). From a year ago, manufacturing output is up 4.2 percent but over the last three months, has fallen at a 1.7 percent annualized rate.

    Manufacturing utilization decreased 0.5 point to 79.3 percent but remains above its long-term average of 78.2 percent. However, it remains well below the 1994-95 high of 84.7 percent.

    Mining output accounts for about 16 percent of total industrial output and posted a strong 1.7 percent increase last month following a 1.2 percent gain in May (see top of second chart). Over the last 12 months, mining output is up 8.2 percent. Utility output, which is typically related to weather patterns and is about 10 percent of total industrial output, fell 1.4 percent with natural gas up 2.2 percent but electric down 2.0 percent. From a year ago, utility output is up 1.4 percent.

    Among the key segments of industrial output, energy production (about 27 percent of total output) rose 0.4 percent for the month (see bottom of second chart) with gains oil and gas well drilling and primary energy production but declines in consumer energy products, commercial energy products, and converted energy products. Total energy production is up 5.2 percent from a year ago.

    Motor-vehicle and parts production (slightly under 5 percent of total output), one of the hardest-hit industries during the lockdowns and post-lockdown recovery, continues to struggle with a semiconductor chip shortage. Motor-vehicle and parts production decreased 1.5 percent in June following a 1.9 percent drop in May (see bottom of second chart). From a year ago, vehicle and parts production is up 12.5 percent.

    Total vehicle assemblies fell to 10.31 million at a seasonally-adjusted annual rate. That consists of 10.01 million light vehicles (see third chart) and 0.29 million heavy trucks. Within light vehicles, light trucks were 8.26 million while cars were 1.75 million. Assemblies have risen sharply from the lows but remain below pre-pandemic levels.

    The selected high-tech industries index gained 0.2 percent in June (see bottom of second chart) and is up 1.8 percent versus a year ago. High-tech industries account for just 2.1 percent of total industrial output.

    All other industries combined (total excluding energy, high-tech, and motor vehicles; about 66 percent of total industrial output) fell 0.4 percent in June (see bottom of second chart). This important category is 3.1 percent above June 2021.

    Overall, industrial output declined in June, resulting in a weak back-to-back performance. Manufacturing output fell for the second month in a row on widespread softness. Ongoing labor shortages and turnover, rising costs and shortages of materials, and logistics and transportation bottlenecks continue to be challenges for the industrial sector. Furthermore, an intensifying Fed tightening cycle, fallout from the Russian invasion of Ukraine, and Covid-19-related problems in China remain significant threats to the economic outlook. Caution is warranted.

    Bob Hughes

    Robert Hughes joined AIER in 2013 following more than 25 years in economic and financial markets research on Wall Street. Bob was formerly the head of Global Equity Strategy for Brown Brothers Harriman, where he developed equity investment strategy combining top-down macro analysis with bottom-up fundamentals.

    Prior to BBH, Bob was a Senior Equity Strategist for State Street Global Markets, Senior Economic Strategist with Prudential Equity Group and Senior Economist and Financial Markets Analyst for Citicorp Investment Services. Bob has a MA in economics from Fordham University and a BS in business from Lehigh University.



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    1 year ago

    He should write a whole chapter, or paper, just about what he very briefly mentioned in his last paragraph. Whether you like it or not, we need oil, and lots of it, to be competitive, self-reliant and safe, in an increasingly hostile world. Joe and this lame government (on both sides of the aisle) are intent in getting us involved in a war with Russia. Meanwhile, China is on the sideline, just waiting to clean up on us. Bob is not telling us the real reasons behind the markets decline. It will get worse. Much worse.

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