The overall Industrial Production (IP) index on a three month moving average (3MMA), basis ticked up 0.41% month on month and by 0.72% year on year (y/y), in May following a large increase in April and smaller increases in February and March. The index now stands at 105.0% of its 2012 average.
The index for manufacturing output rose 0.4% in May as factory production has moved 1.4% higher y/y. Mining has been on the move, rising 1.6% in May and up 8.3% y/y. Durable goods managed a 0.8% increase in May, while non-durable goods was flat.
Capacity utilization for the industrial sector edged down 0.1% point in May to 76.6%, a rate that is 3.3 percentage points below its long-run (34 year), average. Capacity utilization for manufacturing declined 0.3% point in May to 75.5%. A rate that is 2.9% lower than it’s than its long term average. Meanwhile the operating rate for utilities rose 0.3% point to 76.6%.
Figure 1 shows the three month moving average of the US IP index from 2010 to present on a two axis chart with the IP index in red on the left hand axis and the year on year change in percentage terms on the right hand axis.
The IP index recovered nicely after the recession ended, rising for 65 consecutive months peaking in January 2015. It trended downwards with negative y/y growth rates since (with the single month exception of December 2016), through March 2017. Since then the IP index has recorded three consecutive m/m increases. An encouraging development.
A major concern for continued economic expansion going forward is a growing dearth of potential hires, especially in manufacturing and construction. The U3 unemployment rate currently stands at a 16-year-low of 4.3%. According to Bloomberg news, to address this concern, the Trump administration is looking at a goal of creating five million new apprentice positions over the next five years.
At Gerdau, we monitor the US IP index since it gives a broad overview of the health the of the US economy. Drilling down into the sub-indexes of manufacturing, energy, mining and construction offers a current view of “where we are at” relative to demand for steel long products along with a window into the likely trends going forward.