U.S. Manufacturing Capacity Utilization: Manufacturing capacity utilization (MCU), scored a 74.5% in June, down 0.7% month on month, (m/m), its second monthly decreasing for the year. On a year on year (y/y) comparison the MCU was a modest -3.03%.
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 2009 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 lower scoring its second month in a row above 74%.
The Institute of Supply Management’s Index moved up 0.5 points on month, (m/m) to 48.3 for October 2019. This value is an encouraging sign for the manufacturing sector. The index has been less than 50, (>50 = expansion) for thirty-three consecutive months. The new orders sub-index scored a 49.1. Overall, the ISM manufacturing index is strong and fundamentals remain favorable as the global economy strengthens and the U.S. dollar depreciates.
Of 18 manufacturing industries, five reported growth in new orders in October: Wood Products; Furniture & Related Products; Food, Beverage & Tobacco Products; Computer & Electronic Products; and Fabricated Metal Products. The 10 industries reporting a decline in new orders in October, in the following order, are: Primary Metals; Apparel, Leather & Allied Products; Textile Mills; Transportation Equipment; Plastics & Rubber Products; Nonmetallic Mineral Products; Petroleum & Coal Products; Machinery; Miscellaneous Manufacturing; and Chemical Products.
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.