Recent Federal Reserve data reveals that US industrial production outperformed expectations in June, rising by 0.6% compared to a 0.9% increase in May, and significantly exceeding the anticipated 0.3% growth from market analysts. This marks a notable year-over-year increase of 1.6% in industrial output, highlighting the resilience of the manufacturing sector within the broader economy.
Breaking down the numbers, manufacturing output itself posted a growth rate of 0.4% following a robust 1% climb the month prior, defying predictions that foresaw only a 0.1% increase. Notably, the index for nondurable manufacturing production showed impressive momentum, advancing 0.8% for the second consecutive month.
Delving deeper into nondurable categories, the printing and support subsector experienced a significant jump, with a 2.6% increase. Additionally, textile and product mills reported a gain of 1.5%. However, the plastics and rubber products category faced a decline, shrinking by 0.4%. On the durable manufacturing side, production remained stable, held up by substantial increases in motor vehicles and parts, which surged by 1.6%.
Additionally, both electrical equipment and appliances along with furniture products reported a 1.5% growth. Conversely, fabricated metal products experienced a downturn, declining by 1.3%. The utilities sector exhibited robust growth as well, escalating by 2.8% in June compared to a 1.9% rise in May, thanks to increases in electric and natural gas output.
Mining production also saw a slight rebound, growing by 0.3% in June after a previous drop of 0.7% in May. Capacity utilization, a critical measure of economic efficiency, edged up slightly, reaching 78.8% from 78.3% in the previous month. The consecutive production gains recorded in May and June represent the strongest back-to-back performance since late 2021, suggesting that the manufacturing sector may be gaining momentum as the Federal Reserve looks towards potential interest rate cuts.
Observations from BMO indicate that market forecasts for a 25-basis-point rate cut in September have surged to nearly 94%, up by two percentage points from the day prior, as indicated by the CME FedWatch tool..