U.S. industrial production comes in flat in June, manufacturing sector grows on rise in motor vehicle production

U.S. industrial production came in flat in June, after rising 0.4 percent sequentially in the prior month. Consensus expectations were for a rise of 0.1 percent. The flat reading masks significant differences throughout sectors, with a huge weather-related fall in utilities production mostly countered by a strong rise in motor vehicle manufacturing. With softer estimates from earlier in the year, industrial production dropped 1.2 percent quarter-on-quarter in the second quarter, after falling 1.9 percent in the prior quarter.

This was the first instance of consecutive industrial production falls since the second quarter of 2016, during the depths of the 2015-2016 industrial recession. Recent softness shows a number of influences, including fading fiscal stimulus, effects on export demand from soft global growth, and the drag on business investment from trade-related uncertainty, noted Barclays in a research report.

Delving into details, manufacturing sector saw a growth of 0.4 percent sequentially, as compared with consensus expectations of a rise of 0.3 percent. Production was driven by motor vehicle production, which boosted in May and June after a spring soft patch. Stripping motor vehicles, production rose 0.2 percent sequentially – up from May’s flat reading and the largest monthly rise in this category since January. June’s modest rise was underpinned, partially, by overall gains in the business equipment category, with consumer goods largely flat on the month.
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Despite today’s encouraging data, manufacturing seems to be on a soft growth trajectory. Excluding motor vehicles, manufacturing dropped 0.4 percent in June on a three-month saar basis and 1.8 percent on a six-month saar basis.

“Indeed, given the weak estimates from earlier months, today's data still place the industrial sector in a technical recession. With global fundamentals for final goods demand generally unfavorable given simmering trade tensions and the soft global growth backdrop, manufacturing appears unlikely to register meaningful gains in the coming months. However, downside risks for domestic manufacturing production appear to have abated for the time being”, added Barclays.

Utilities production dropped in June as the weather returned to seasonal norms after May’s hotter-than-normal temperatures. Meanwhile, mining sector’s production rose 0.2 percent sequentially for the second straight month in June, as U.S. producers seemed through net declines in crude oil prices earlier in the month.

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