The July Industrial production, (IP) report decreased slightly (0.2%) MoM for the month at 109.2. On a year on year, (y/y) basis, the IP index was up 1.2%.

Industrial production is a pure measure of output, untainted by the effects of price swings, in the industrial part of the U.S. economy. Every month, the Federal Reserve calculates an index of industrial production after collecting data on 312 industry components representing manufacturing, mining, and the electric and gas industries. The individual series are constructed from two types of source data: (1) output measured in physical units and (2) data on inputs into the production process, in which output is inferred. Each component is given a weight based on how important it is to the economy. These weights are adjusted once a year. The current reference period for the index is 2002.

Figure 1 illustrates the U.S. industrial production from 2010 to present as a three-month moving average, (3MMA) on the left hand Y-axis. Year on year change in percent is shown on the right hand Y axis. The 3MMA in July was 109.27, down 0.7 m/m and up 1.2% year on year.

Manufacturing fell 0.4% in July, with broad based declines across durable and non-durable good sectors. The only sizable gains were in aerospace and miscellaneous transportation equipment. Auto production slipped 0.2% after a 2.5% gain in June. “Manufacturing is in recession, but not in meltdown,” said Ian Shepherdson, chief economist at Pantheon Macroeconomics. “It is nothing like deep enough to threaten the overall economy.”

Capacity utilization fell to 77.5% in July, the lowest rate since October 2017. The capacity utilization rate reflects the limits to operating the nation’s factories, mines and utilities. It is still below pre-2008 recession levels, above 80%, that could fan production costs and prices.

We monitor U.S. Industrial Production at Gerdau because it gives a real time evaluation of the current health and insight on the short-range future of the manufacturing sector.