Wednesday, 22 of May of 2019

Economics. Explained.  

Industrial Production

May 15, 2019

Industrial production fell 0.5% in April after having risen 0.2% in March.   This is its third decline in the past four months.  During the past year industrial production has risen 0.9% but one year ago it was climbing at almost a 4.0% pace.

Breaking industrial production down into its three major sub-components,  the Fed indicated that manufacturing production (which represents 75% of the index) fell 0.5% in April after having been unchanged in March.  During the past year  factory output has declined 0.2% (red line, right scale).

To a large extent factory production is being curtailed by the trade sector and the impact of tariffs on both manufacturing firms that import components used in the production process from overseas, as well as firms that export goods to other countries because of their tit-for-tat increase in tariffs.  In addition, slower production in the manufacturing sector has come from the oil and gas sector.  Over the last year oil and gas well drilling activity has risen 3.1%. But a year ago drilling activity had risen 13.9%.  Two years ago it was growing 55.6%.

Mining (14%) output jumped 1.6% in April after having fallen 0.4% in March.  Over the past year mining production has risen 10.4%.

Utilities output fell 3.5% in April after having risen 2.2% in March.  During the past year utility output has fallen 4.7%.

Production of high tech equipment rose 0.6% in April after having fallen 0.1% in March.  Over the past year high tech has risen 3.2% but obviously its growth rate recently has been slowing down.  It is  likely that the slower growth in this category reflects reduced demand for technological products from outside of the U.S. where economic activity has slowed noticeably.   We need to see renewed vigor in this sector if we are going to see the continuing strength in nonresidential investment that will be required for a sustained pickup in productivity.

Capacity utilization in the manufacturing sector fell 0.4% in April to 76.2% after having declined 0.1% in March.  It remains somewhat below the 77.4% level that is generally regarded as effective peak capacity.  However, factory owners will soon have to spend more money on technology and re-furbishing or expanding their assembly lines to boost output.

Given that the economy remains relatively robust the manufacturing sector should tend to climb in the months ahead, but the higher tariffs are curtailing its rate of growth.  Look for little change in industrial production between now and yearend.

Stephen Slifer


Charleston, SC

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