Strong industrial production numbers for July suggest manufacturing is leading the economy

Manufacturing is leading the economy in July and was stronger than earlier believed in June. Industrial production increased a robust 0.4 percent in July, equaling the revised June pace (originally up 0.2 percent). Expectations were for a 0.3 percent boost for July. The manufacturing component surged 1.0 percent in July, following a 0.3 percent increase in June. The median market forecast was for 0.5 percent. Mining advanced 0.3 percent after jumping 1.3 percent in June. Utilities dropped 3.4 percent, following a 0.7 percent dip in June.

Within manufacturing, the production of durable goods increased 1.7 percent in July and was 8.2 percent higher than its year-earlier level. In July, the gain in durables was led by an increase of 10.1 percent in the index for motor vehicles and parts, which was the largest since the index jumped 26.9 percent in July 2009. All of the other major durable goods industries, with the exception of miscellaneous manufacturing, recorded increases, with the largest gain registered by furniture and related products. The production of nondurables increased 0.3 percent in July and has moved up 2.1 percent over the past 12 months.

The overall capacity utilization rate in July firmed to 79.2 percent from 79.1 percent the month before. July matched market expectations.

The manufacturing sector appears to be healthier than even recent manufacturing surveys have suggested. The recovery seems to have greater strength than believed with domestic demand being the driving force-literally with auto assemblies up. Despite softness in inflation, the Fed may need to consider an early rise in policy rates next year. But there will need to be trend-not just one month strength.