U.S. industrial production increased for a third straight month in July, indicating manufacturing is gradually emerging from a deep demand slump tied to the coronavirus pandemic.
Total output at factories, mines and utilities rose 3 per cent from the prior month after a revised 5.7 per cent gain in June that was the biggest since 1959, Federal Reserve data showed Friday. The July increase matched the median projection in a Bloomberg survey of economists. Factory output climbed 3.4 per cent last month, while manufacturing capacity utilization increased to 69.2 per cent.
Despite another solid advance in production, the Fed’s index of industrial output is still down 8.3 per cent from February, before the pandemic prompted lockdowns of businesses and sent the economy into a tailspin. The report also showed plenty of spare capacity as the utilization rate remains well below the 75 per cent that prevailed before the virus took hold.
Excess capacity weighs on corporate profits because capital is underutilized and it also signals business investment in new equipment will remain depressed and weigh on economic growth. Total capacity utilization, including factories, mines and utilities, improved to 70.6 per cent from a revised 68.5 per cent. The latest plant-use rate is well below the 76.9 per cent seen in February.
Most major industries reported an increase in factory output last month. Production of motor vehicles and parts led the gain with a 28.3 per cent advance. Excluding auto production, factory output climbed 1.6 per cent after larger gains the prior two months.
The Fed’s report showed utility output increased 3.3 per cent, while mining rose 0.8 per cent, the first advance since January. Oil and gas well drilling fell another 8 per cent after an 18 per cent drop a month earlier. Drilling has plummeted 71.5 per cent from a year earlier after a slump in oil prices month ago prompted exploration and production companies to slash projects.
--With assistance from Jordan Yadoo.