Mild Disinflation Signs In June's Soft Industrial Production Report

US industrial production was soft in June (-0.5% M/M vs flat expected), and particularly weak when considering downward revisions to May (-0.5% vs -0.2% in the first reading).

• Capacity utilization slipped to the lowest level since October 2021 at 78.9%, down from a downwardly revised 79.4% in May.
• The main downward contributor here was a 2.1pp drop in utilities utilization to 68.5% - a fresh all-time low in the series (though manufacturing cap util inched lower by 0.3pp to a 3-month low of 78.0%).
• Manufacturing contracted for the 2nd consecutive month and 3rd month in 4 at -0.3%
• Utilities dragged once again, with a 3rd consecutive monthly contraction (-2.6%) and 5th in 6 months.
• In terms of major market groups, the standout was a sharp drop in consumer goods: -1.3%, the biggest drop since February 2021.
• Overall this was a soft report, and it's noteworthy that June represented the first Y/Y contraction for IP in the cycle (-0.4%).
• Though it should be kept in mind that weakness in industrial production is not a new or surprising development after the post-pandemic surge, and services (and not goods) is where the major inflation issue remains.
• And the disinflationary impact of the lower capacity utilization should be taken in the context of softer utilities driving the drop.