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The numbers: U.S. industrial production rose 1% in July, the Federal Reserve reported Wednesday, on the back of strong utility use from the hot summer weather and a rebound in auto production.
The increase in factory output in July was above expectations of a 0.5% gain, according to a survey by The Wall Street Journal.
Output in June was revised down to a decline of 0.8% from the initial estimate of a 0.5% drop.
Capacity utilization increased to 79.3% from 78.6% in the prior month. The capacity utilization rate reflects the limits to operating the nation’s factories, mines and utilities. It shows moderate price pressure, economists said.
Economists had forecast a 79.1% rate.
Key details: Manufacturing alone rose 0.5% in July, reversing a 0.5% drop in the prior month.
Motor vehicles and parts output jumped 5.2% after a 3.9% decline in the prior month. Excluding autos, total industrial output increased 0.7%.
Excluding autos, factory activity was up 0.1% following declines of 0.4% in May and 0.2% in June.
Utilities output surged 5.4% in July as very high temperatures raised demand for air conditioning. That’s the biggest gain since March
Mining output, which includes oil and natural gas, rose 0.5% after a 0.9% decline in the prior month.
Defense production is also surging.
Big picture: Take away the utilities and autos increase and manufacturing is fairly weak. Goods producers are pulling back to get their inventories down, said Stephen Stanley, chief U.S. economist at Santander.
What are they saying? “We think last month’s increase will be reversed quickly as the industrial sector is poised to face multiple, intense challenges. Weakening goods demand, elevated interest rates, tighter lending standards, inventory destocking, and the strong US dollar all portend weaker industrial production in the months ahead,” said Oren Klachkin, U.S. economist at Oxford Economics.
Market reaction: Stocks
DJIA
SPX
opened higher on Wednesday. The yield on the 10-year Treasury note
BX:TMUBMUSD10Y
was unchanged at 4.22%.
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