US industrial production growth exceeds expectations in July

US industrial production growth surpassed consensus expectations in July. Industrial output in July rose 0.7 percent in sequential basis, as compared with the consensus projection of 0.3 percent growth. Above-anticipated manufacturing growth, along with better than expected utilities growth mainly drove the growth in industrial output in July.

Manufacturing grew 0.5 percent in July, as compared with the forecast of 0.3 percent, whereas utilities output came in at 2.1 percent. Within manufacturing, motor vehicles and parts rose 1.9 percent month-on-month, a slowdown from earlier month’s 5.3 percent growth. Meanwhile, key subsectors of manufacturing output registered strong gains in July. Machinery production grew 0.7 percent in sequential terms, a ten-month high, while petroleum refining rose 0.9 percent month-on-month.

In annual terms, production grew 0.1 percent. The manufacturing sector of the country has shown resilience to decelerating growth outside the US and past strengthening of the US dollar. Strong readings on new orders and production from the ISM manufacturing survey show that the recovery is expected to continue in the coming few months.

Elsewhere, production in mining rose 0.8 percent month-on-month, as compared with June’s decline of 0.4 percent. This indicates certain signs of stabilization as rig counts are rising in the third quarter, suggesting that mining is unlikely to be a major drag on the monthly industrial production growth in the future.

“Overall, these factors suggest the outlook for the US industrial sector has improved modestly and support our expectation of healthier economic growth in H2 16”, said Barclays in a research report.

Better than anticipated growth in utilities production implies more consumer spending on electric and natural gas utilities that stimulated the tracking estimate of third quarter’s real consumption growth by two-tenths to 2.5 percent, added Barclays.