May Industrial Production

Our nation’s industrial production, according to the Federal Reserve, continued showing the weakening momentum we saw in April on into May. The headline number remained unchanged and last month’s total did get revised up one-tenth to reflect a -0.4% decline. The consensus was looking for a slight two-tenths improvement so the report tends to provide emphasis for our concern voiced in last month’s report that a weakening trend could be developing in this indicator.

Utilities pared their output further, off 1.8% in May, following the 3.2% decline registered in April. Mining added 0.7% to the 1.1% gain we saw last month. Manufacturing rose a scant 0.1% which does little to offset the previous 0.4% decline. In fact, this is the first increase we have seen in four months. A separate report showing a wide-spread gain in inventories may cause manufacturers to become more cautious, returning this data series to the negative column.

Capacity utilization rates also took a slight tumble down 0.1% to 77.6% in May, following a similar 0.1% downward revision from the original April total. This provides further evidence that our economy may be slowing a bit. If that pans out, expect the Federal Reserve to send a clear signal it intends to maintain the pace of its stimulus measures via so-called quantitative easing programs for some time yet. Should they do so, Atlas expects it could be taken as good news for both the equity and fixed income markets in today’s perverse monetary environment. (by J R)