U.S. IP increased in July as motor vehicle and parts production returned to pre-pandemic levels

*U.S. industrial production (IP) increased by 3.0% m/m in July, bringing its three-month cumulate change to 9.8% and placing it 8.4% below February’s level (Chart 1). Production increased across all major industry groups: motor vehicle and parts (+28.3% m/m); manufacturing ex autos (+1.6% m/m); utilities (+3.3% m/m). Mining production increased for the first time since January (+0.8% m/m) but remained low (Chart 2).

*We expect continued growth in production in the near term as businesses rebuild inventories. The mandated lockdowns constrained production, while the reopening of the economy resulted in a faster rebound in goods consumption than production. This resulted in a depletion of inventory investment which subtracted 4pp from growth in Q2 (Chart 3). Surveys suggest that an elevated share of manufacturers’ continue to view their customers’ inventories as too low (Chart 4) and that small businesses view their own inventories as low.

The massive 490.9% cumulative increase in motor vehicle and parts production over the last three months has pushed it back to pre-pandemic levels, after its stunning collapse to a record low (monthly data began in 1972) in April (Chart 5). Auto production has rebounded strongly in response to the robust gains in vehicle sales. The large 0.8% m/m increase in the consumer price index for new vehicles in July to a 3.5-year high suggests that demand is continuing to outpace supply, so further growth in auto production is needed (Chart 6).

Manufacturing production ex motor vehicles, which is indicative of broader manufacturing trends, has increased by only 7.5% over the last three months and is 8.7% below February’s level (Chart 7). Outside of autos, demand for manufacturing goods remains subdued.

Production of computer and electronic products increased by 0.7% m/m in July, placing it only 2.1% below February’s level. It has outperformed all other industries except autos, with demand for computer products boosted by the shift to work from home (chart 8).

The IP subcategory drilling of oil and gas wells declined by 8% m/m in July -- its 16th monthly decline since the start of 2019 -- to a new all-time low and will again weigh heavily on the Bureau of Economic Analysis’ estimate of structures investment in GDP in Q3 (Chart 9). Investment and hiring in oil and gas and supporting sectors will remain sluggish even as activity rebounds in other sectors.

Chart 1:

Chart 2:

Chart 3:

Chart 4:

Chart 5:

Chart 6:

Chart 7:

Chart 8:

Chart 9:

Roiana Reid, roiana.reid@berenberg-us.com

Member FINRA & SIPC
This email and any files or attachments transmitted with it may contain confidential or privileged information and are intended solely for the use of the intended recipient. If you are not the intended recipient, please do not copy, retain, disclose or use any part of the message or its attachments. Please notify the sender immediately by return email and destroy or delete any copies. Dissemination or use of this information by anyone other than the intended recipient is unauthorized and may be illegal. Communications by email cannot be guaranteed to be secure or error-free. Emails and their attachments are subject to being intercepted, becoming corrupted, getting lost or delayed, or may contain viruses. Therefore, neither the sender nor Berenberg Capital Markets LLC (BCM) accepts any liability for any errors or omissions in the content of this message or problems in its transmission, including those arising as a result of its transmission over the internet.
BCM does not assume liability for the correctness and completeness of all information given and/or attachments contained herein. The provided information has not been checked by a third party, especially an independent auditing firm. BCM explicitly points to the stated date of preparation. The information given can become incorrect due to passage of time and/or as a result of legal, political, economic or other changes. BCM does not assume responsibility to indicate such changes and/or to publish an updated document. Any document(s) or attachment(s) is meant exclusively for institutional investors and market professionals, but not for private customers. It is not for distribution to or the use of private investors or private customers.
In light of upcoming regulatory changes, please be informed that BCM will continue to share information with you until unsubscribe@berenberg-us.com receives your termination/deletion request. For more information about the General Data Protection Regulation (GDPR) and our privacy policies please refer to https://www.berenberg-us.com/legal-notice. BCM reserves all the rights in this communication. No part of this communication or its content may be rewritten, copied, photocopied or duplicated in any form by any means or redistributed without BCM’s prior written consent.
The information contained herein and sourced may have been adopted from various news sources, for example, Bloomberg, Reuters, Street Account and various other sources. BCM does not claim accuracy, completeness, timeliness, suitability, or otherwise regarding all the information on the securities, stock markets, or developments referred to within. On no account should the Content be regarded as a substitute for the recipient procuring information for himself/herself or exercising his/her own judgments. BCM is not responsible for any recipient(s) use of this information. This Content is not a solicitation or an offer to buy or sell any of the securities contained herein. This information does not constitute a recommendation or take into account the particular investment objectives, financial situations, or needs of clients. Clients should consider whether any advice or recommendation in this Content is suitable for their particular circumstances and, if appropriate, seek professional advice, including tax advice. The price and value of securities which may be referred to in this Content and the income from them may fluctuate. Past performance is not a guide to future performance, future returns are not guaranteed, and a loss of original capital may occur. Fluctuations in exchange rates could have adverse effects on the value or price of, or income derived from, certain securities.