April Industrial Production

The Federal Reserve reported America’s level of industrial production fell hard in April, dropping by 0.5%, well below the 0.2% declined penciled in by consensus.  They also knocked one-tenth off last month’s total, bringing it to a 0.3% gain.  We had previously warned that March’s cheery news could be disguising some problems and, when we look at the main components of this month’s report, those concerns seem to be coming to the fore.

Output from utilities dropped 3.7%, no big surprise since it largely reflects more normal usage after the spate of cold weather felt in March boosted demand.  And mine production climbed 0.9% after a slight decline in March.  Our concern stays focused on the weakness in the important manufacturing component which followed the 0.3% March fall by a 0.4% dip in April.  Production totals of non-durable goods were off 0.1% while the durable goods component fell 0.6 percent, showing a decline in almost every major category constituting its whole.

Another sign pointing to some weakness in this month’s report centered on capacity utilization.  In April it declined to 77.8%, down 1/2% from the March revision, now 0.2% lower than first reported.  By itself this number is not too worrisome even though it remains below the 80% level generally seen as normal.  Should this become a trend however, it will surely garner attention from a broad swath of economists.
What are we to take away from this report?  Obviously there seems to be some steam leaking out of America’s manufacturing.  The reason can legitimately be laid to several culprits:  the Eurozone is now in its 6th quarter of recession; England is in its second.  Japan seems to remain a basket case.  Concerns about the resiliency of Brazil’s economy–or China’s–are taking the stage.  All this could subtract support for our nation’s second quarter Gross Domestic Product total, leading to a potential further weakness in employment down the road.     (by J R)