PNC Economics Research IP

PNC Economics Research 18 August 2026

Industrial Production Up Again in July as Modest Manufacturing Recovery Continues

Headlines Gus Faucher  Total industrial production rose 0.2% in July and has been increasing for the past two years. Manufacturing output also rose 0.2% over the month. PNC Economics

 Total industrial production is still 1% below its all-time high, with manufacturing production 7% below its peak.

 The capacity utilization rate rose slightly in July to 76.3%. Commodity and goods inflation are coming from tariffs and the Iran conflict, not capacity constraints.

 Industrial production should continue to grow modestly into 2027.

Details Industrial production rose 0.2% in July from June, output was revised lower in May to no gain from a according to the Federal Reserve Board. Industrial 0.1% increase, but was revised higher in June to 0.3% output has been increasing gradually since late growth from no growth. 2024, and is now above its pre-pandemic level. However, production is still about 1% below its all- Mining output rose 0.2% in July, with utilities output time high in 2018. Production plunged with the up 0.5% because of warmer-than-usual weather. pandemic and then recovered, although not to its pre-pandemic level. Industrial output then moved On a year-ago basis total industrial production was gradually lower from mid-2022 through 2024 before up 1.1% in July. Manufacturing production was up starting to recover. Solid economic growth, 1.2%, with 0.7% growth for utilities. Mining output was reshoring in the wake of tariffs, and strong up 1.0% from a year earlier, although oil and gas well investment demand for tech goods have boosted drilling were up more than 9% in the wake of higher production over the past year and a half. Industrial energy prices from the conflict with Iran. production has risen in four of the past six months, and was flat in one other month. The total capacity utilization rate rose to 76.3% in July from 76.2% in June. The manufacturing Manufacturing output also rose 0.2% in July. It has capacity utilization rate rose to 76.0% from 75.9%. followed a similar pattern to overall industrial Both rates remain stuck in the mid-70s, well below production in recent years, although it remains the 80% rate that indicates capacity constraints about 7% below its all-time high in late 2007, at the and increased pricing power in the industrial sector. beginning of the Great Recession. Manufacturing Instead, tariffs and now the conflict with Iran have

PNC Economics Research 18 August 2026

been pushing prices higher for energy and Figure 2: Capacity utilization (%, SA) manufactured goods in 2025 and 2026. 80

The industrial sector and manufacturing continue 79

their gradual recoveries. Consumer spending on 78 goods is increasing steadily, and there is strong demand for AI- and data center-related investment 77 goods. There has also been some movement of production to the U.S. given higher tariffs under the 76 Trump administration. These modest gains in output should continue into next year. 75 '22 '23 '24 '25 '26 Sources: Federal Reserve, PNC Manufacturing employment, after falling steadily from 2023 to 2025, has been picking up slowly this year, increasing in five of the seven months so far in 2026. But with productivity growth, output in manufacturing has been increasing faster than employment, so the job gains in the industry have been small.

There are few inflationary pressures coming from capacity constraints in manufacturing and the industrial sector more generally, and given the low capacity utilization rate, inflationary pressures are unlikely to appear anytime soon. Instead, tariffs and the Iran conflict are driving goods inflation. If those pressures fade as expected, inflation should ease in the second half of the year, allowing the Federal Open Market Committee to keep the federal funds rate unchanged through the rest of 2026 and into 2027.

Figure 1: Industrial production (3mma) 103

98 '22 '23 '24 '25 '26 Sources Federal Reserve, PNC