U.S. industrial production is the highest since 2018, continuing its climb from the two-month 2020 recession (gray bar in graph). Automobile production highlighted the surge.
This is huge, folks, and a sign that GDP growth in the third quarter may be positive after the first two quarters of negative growth in 2022. Capacity utilization rebounded to 80.3 percent in July from 79.9 percent in the prior month. Output of the U.S. industrial sector was at an all-time high, above the level hit in 2018.
Why the manufacturing surge now? President Biden’s $1.2 trillion infrastructure bill includes funding allocations of $89.9 billion to improve public transit, $65 billion toward better internet connectivity and access, and money for 500,000 electric vehicle charging stations, which could help address charging “deserts;” areas where it isn’t currently available.
“All of that’s good news for manufacturers who are already experiencing high demand, which could “continue on for months, if not years, going forward,” David Zrostlik, president of Stellar Industries, recently said in the Wall Street Journal.
The bill will also improve workers’ productivity by modernizing our transportation networks.
“The infrastructure bill widely focuses on improving passenger and freight transportation, for instance, so steel and material suppliers, including companies that produce materials for buses, trains, bridges, rail, or related equipment, could see heavy activity. Makers of products supporting things like 5G infrastructure and EV stations, too, will see improved demand,” said a Forbes Magazine article on its effects.
Retail sales also surged, which could even boost revisions to Q2 GDP from a negative to possibly breakeven says Reuters’ Wrightson/ICAP.
“Core sales in July (excluding autos and gas) were up 0.7% versus our forecast of a sluggish 0.1% increase, and the May and June levels were revised up markedly. By themselves, this morning’s numbers should contribute to an upward revision to Q2 GDP on the order of half a percentage point.”
U.S. Manufacturing rose 0.7 percent in July after falling in the prior two months. Motor vehicles and parts output rose 6.6 percent after a 1.3 percent fall on the prior month. Excluding autos, total industrial output increased 0.3 percent. Auto assemblies were the highest since August 2020. Utilities output fell 0.8 percent in July. Mining output, which includes oil and natural gas, rose 0.7 percent, the third straight solid gain.
As important in bringing down oil prices was that oil and gas drilling is at a 7-year high. U.S. crude oil prices have dipped below $90 per barrel of late, and who knows how much lower they may decline?
Prices could ease further if Iran agrees to a new draft nuclear agreement after it backed off from its demand that the Islamic Revolutionary Guards be removed from the U.S. terrorism list, reports the NY Times, opening a potential of at least one million more barrels a day of Iranian petroleum exports (which would make up for the loss from the end of U.S. Petroleum Reserve contribution in November).
Harlan Green © 2022
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