Industrial production increased 1.2% in May

Data Watch
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Industrial production increased 1.2% in May
Brian S. Wesbury - Chief Economist
Robert Stein, CFA - Senior Economist

Industrial production increased 1.2% in May, beating consensus expectations of 0.9%. Production is up at an 8.0% annual rate in the past six months.

Manufacturing output increased 0.9% in May and is up at an 8.4% annual rate in the past six months. Auto output, which is volatile from month to month, spiked up 5.5% in May, while manufacturing output excluding autos increased 0.7%.

The production of high-tech equipment increased 1.7% in May, was revised up for April, and is up at a 24.4% annual rate in the past six months.

Overall capacity utilization increased to 74.7% in May and is up 6.4 percentage points from the low of 68.3% last June. This is the fastest 11-month increase since 1983-84. Manufacturing capacity use rose to 71.5%.

Implications: Manufacturing continues to lead the V-shaped recovery. Since the low in June 2009, manufacturing production is up at an 8.8% annual rate, which is faster growth than even during the tech boom of the late 1990s. We expect rapid gains in production to continue. First, inventory-to-sales ratios are at rock-bottom record lows in both the retail and wholesale sectors. This means production has room to run higher than the pace of sales as companies try to re-stock shelves that are too bare. Second, although up 18% versus last year, the pace of auto sales is still significantly below what’s needed to keep up with scrappage rates and the rise in the driving-age population. In other recent news on the factory sector, the Empire State Index, a measure of manufacturing in New York, increased to 19.6 in June from 19.1 in May, indicating a mild acceleration in already rapidly growing activity in June.