Implications: A great report today on the factory sector. Industrial production rose 1.1% in April, easily beating the consensus expected gain of 0.6%, as both mining and utilities bounced back in April. The manufacturing sector also gained 0.5% in April, and was up 0.2% including downward revisions to prior months. The data we watch most closely is manufacturing production ex-autos. This figure rose 0.3% in April, and has risen in 8 of the last 9 months. That's a very good track record, given that manufacturing ex-autos usually falls three or four times a year even during normal economic expansions. The fact that it hasn't over the past few years is a testament to the current strength in the manufacturing sector. Higher production is making factories use higher levels of capacity. Utilization in manufacturing is now at 77.9%, which is higher than the 20-year average of 77.7%. Overall utilization in the factory sector rose to 79.2%, the highest level since April 2008. As capacity use moves higher, firms have an increasing incentive to invest in more plant and equipment. Meanwhile, corporate profits and cash on the balance sheet show they have the ability to make these investments.
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