Improved automotive production fueled a 0.6% increase in industrial output in July, but production elsewhere in the manufacturing sector edged up only 0.1%, according to the U.S. Federal Reserve.
The increase in industrial output was the largest gain since November and the second straight increase for the measure after starting the year with five monthly decreases.
Manufacturing output advanced 0.8%, with production of motor vehicles and parts jumping 10.6%. Demand for cars and trucks has been strong, reflected in a 9% increase in production from a year earlier.
But as Dow Jones reports, the July data on auto production could be misleading due to seasonal variations caused by temporary shutdowns of auto factories for retooling.
“The true production gain in July was likely nowhere near as strong as the headline 0.8%,” economists from RDQ Economics wrote in a note to clients. Underlying growth for manufacturers is more modest “as the sector adjusts to the dollar strengthening and may be slowly picking up.”
Capacity utilization, which measures industrial slack, increased 0.3 percentage points to 78.% in July from June. The measure has risen 1.7 percentage points over the past year, but stands 2.1 percentage points below its average since 1972.
Economists surveyed by The Wall Street Journal had expected a 0.4% increase in industrial production last month and capacity utilization of 78.0%.
The 1.5% advance in manufacturing output from a year earlier “fails to even keep up with lackluster overall economic growth,” Dow Jones said. “A bumpy global economy, the stronger U.S. dollar and a slowdown in the oil and natural gas industry are all factors holding back manufacturing’s expansion.”