July 15, 2021

.Industrial production rose 0.4% in June after climbing 0.7% in May and being unchanged in April  Production has risen steadily since reaching a low point in April of last year.  The nation’s production sector continues to recover.  However, as shown below, production is still 1.2% below where it was in February of last year — prior to the recession.  But it will continue to close the gap in the months ahead.

The reason the manufacturing sector will continue to climb in the months ahead is because orders have been flowing in, but firms have been unable to boost production enough to keep pace with demand as they encounter an inability to find qualified workers and they face delays in getting the required production materials from their suppliers.  The ratio of orders to output components of the purchasing managers index is at a record high level.  Manufacturers need to step up the pace of production if they can.

At the same time their supplier deliveries are the slowest on record.

Breaking industrial production down into its three major sub-components,  the Fed indicated that manufacturing production (which represents 75% of the index) rose fell 0.1% in June after rising 0.9% in May.  This series is 0.8% below where it was in February of last year — prior to the recession.

Much of the shortfall is in the automobile sector as the chip shortage has curtailed auto production in recent months.  Automobile production fell 6.6% in June after rising jumped 6.7% in May.  The chips shortage is continuing.

High tech production was hit less sharply than most other sectors of the economy during the recession as business people turned to technology to help them cope with the fallout from the virus.  As a result high tech fell only slightly during the recession, and has now far surpassed its pre-recession high.  In the past year high tech production has risen 16.0%.  High tech spending helped the economy out of the recession.  It is also going to help businesses adapt to the new economy that is still evolving.

Mining (14%) output rose 1.4% in June after climbing 0.8 in May.  Mining has risen 17.8% in the past year.

Utilities output rose 2,7% in June after falling 0.8% in May.  Over the past year utility output has risen 2.1%.

Capacity utilization in the manufacturing sector fell 0.1% in June to 75.3% after having risen rose 0.7% in May.  It remains well below the 77.4% level that is generally regarded as effective full capacity utilization.

We expect GDP growth of 9.0% in Q2, and 8.0% growth for 2021.

Stephen Slifer

NumberNomics

Charleston, SC