The Federal Reserve has reported a significant increase in industrial production for the month of July. Factory output rose by 1%, exceeding expectations of a 0.5% gain. This surge can be attributed to a higher demand for utilities due to the hot summer weather, as well as a rebound in auto production.
Strong Manufacturing Growth
Manufacturing alone saw a 0.5% increase in July, reversing the 0.5% drop from the previous month. The output of motor vehicles and parts experienced a substantial jump of 5.2%, following a 3.9% increase in the prior month. When excluding autos, total industrial output still showed growth at 0.7%.
Moderate Increase in Factory Activity
Although factory activity, excluding autos, only rose by 0.1%, it is still a positive sign after experiencing declines of 0.4% in May and 0.2% in June.
Rise in Utilities Output
Utilities output witnessed a surge of 5.4% in July, with increased demand for air conditioning during the very high temperatures. This marks the largest gain since March.
Mining Output Rebounds
Mining output, which includes oil and natural gas, recovered with a 0.5% increase after experiencing a decline of 0.9% in the previous month.
A Closer Look
However, when excluding the contributions from utilities and autos, it is clear that manufacturing alone is showing signs of weakness. According to Stephen Stanley, chief U.S. economist at Santander, goods producers are reducing their inventories.
Market Impact
As a result of this report, stock markets are expected to open lower on Wednesday. Additionally, the yield on the 10-year Treasury note rose to 4.24%.