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Total output at factories, mines and utilities rose 3% from the prior month after a revised 5.7% gain in June that was the biggest since 1959, Federal Reserve data showed Friday. The July increase matched the median projection in a Bloomberg survey of economists. Factory output climbed 3.4% last month, while manufacturing capacity utilization increased to 69.2%.
Despite another solid advance in production, the Fed’s index of industrial output is still down 8.3% from February, before the pandemic prompted lockdowns of businesses and sent the economy into a tailspin. The report also showed plenty of spare capacity as the utilization rate remains well below the 75% that prevailed before the virus took hold.
Excess capacity weighs on corporate profits because capital is underutilized and it also signals business investment in new equipment will remain depressed and weigh on economic growth. Total capacity utilization, including factories, mines and utilities, improved to 70.6% from a revised 68.5%. The latest plant-use rate is well below the 76.9% seen in February.
Most major industries reported an increase in factory output last month. Production of motor vehicles and parts led the gain with a 28.3% advance. Excluding auto production, factory output climbed 1.6% after larger gains the prior two months.
The Fed’s report showed utility output increased 3.3%, while mining rose 0.8%, the first advance since January. Oil and gas well drilling fell another 8% after an 18% drop a month earlier. Drilling has plummeted 71.5% from a year earlier after a slump in oil prices month ago prompted exploration and production companies to slash projects.
©2020 Bloomberg L.P.
