Manufacturing capacity utilization (MCU), scored a 75.5% in June, up 0.67% month on month, (m/m), its third consecutive monthly increase. On a year on year (y/y) comparison the MCU was up 0.9%.
Manufacturing fundamentals continue to improve. Both the U.S. and global economy are strengthening and at the same time, the dollar has depreciated against the Broad Index, (basket of countries’ currencies that the U.S trades with). In addition, inventories that were previously seen as a drag on production have now shifted to a supporting role.
Figure 1, charts capacity utilization from 2000 to present. The MCU index is currently in the green zone which is considered to be ideal. After a long run at the bottom of the “green zone”, the index has begun to move higher scoring its ninth month in a row above 74.5%.
The Institute of Supply Management’s Index moved up 1.5 points on month, (m/m) to 60.2 for June 2018. This value is an encouraging sign for the manufacturing sector. The index has been greater than 50, (>50 = expansion) for twenty-two consecutive months. The new orders sub-index scored a 63.5. Overall, the ISM manufacturing index is strong and fundamentals remain favorable as the global economy strengthens and the U.S. dollar depreciates.
The Bureau of Economic Analysis reported that the U.S. annualized GDP grew by 3.2% in the third quarter, down marginally from its previous estimate of 3.3%. The U.S. economy has expanded for two quarters by 3% or more, and most analysts expect the streak to continue and possibly increase to the 3.5% range. With the passage of comprehensive tax bill it is probable that many manufacturing firms will increase their investments. Overall, this month’s manufacturing capacity utilization was very positive.
At Gerdau we regularly monitor the manufacturing capacity utilization date issued by the Federal Reserve because it provides excellent insight into the health of US manufacturing activity. We know that when manufacturing is performing well, so are steel sales and want to keep you our valued customers and readers informed.