U.S. Industrial Production Climbed 0.2% in July, Driven by Tech and Core Manufacturing

U.S. industrial production registered a 0.2% increase in July, a slight deceleration from the 0.3% consensus expectation. However, when accounting for upward revisions to prior months' data, the gain reached 0.4%, indicating broader momentum. This modest expansion was supported by contributions from all three major categories: manufacturing, mining, and utilities.

Manufacturing output, which excludes mining and utilities, advanced 0.2% in July. Including revisions, this sector's growth was a more robust 0.6%. A notable component was the 2.1% decline in auto production, yet non-auto manufacturing still managed a 0.3% rise, demonstrating resilience. Over the past year, auto production has increased 2.0%, while non-auto manufacturing is up 1.0%.

A significant driver of industrial growth continues to be high-tech equipment production, which surged 1.9% in July and boasts an impressive 11.8% year-over-year increase—the fastest annual rate among major series. This strong performance is attributed to ongoing investments in artificial intelligence and the reshoring of semiconductor manufacturing. Production of business equipment also contributed positively, rising 0.8% in July and 6.6% over the past year, significantly outpacing the overall industrial production gain of 1.1% and signaling a broader trend toward reindustrialization.

Beyond manufacturing, mining activity expanded by 0.2% in July. This was primarily fueled by a substantial increase in drilling activity and other mineral extraction, offsetting a decline in oil and gas extraction. Utilities output also rose by 0.5%. This sector, while typically volatile and weather-dependent, has shown an upward trend since 2023, largely due to increased demand for power from data centers.

Overall capacity utilization nudged up to 76.3% in July, with manufacturing capacity utilization specifically climbing to 76.0% from 75.9% in the prior month. In other recent economic indicators, the Empire State Index, a gauge of factory sentiment in the New York region, improved to +20.6 in August from +15.6 in July. Meanwhile, trade data for July showed import prices declining 0.4% and export prices falling 1.3%. Annually, import prices are up 5.9%, and export prices have risen 8.2%.

Key terms

1. Industrial Production: A measure of the total output of factories, mines, and utilities, providing insight into the health of the manufacturing sector and broader economy.

2. Capacity Utilization: The percentage of total production capacity that is being used, indicating how much slack or potential for growth exists within the industrial sector.

3. Empire State Index: A monthly survey of manufacturing firms in New York State, reflecting business conditions and sentiment in the region.

Source: This article is adapted from First Trust Portfolios' Data Watch commentary on this data release. The original is available at ftportfolios.com.