Implications: Today's report on the factory sector was deceptive. Industrial production was unchanged in March, which was less than the consensus expected, but prior months were revised up 0.4%. This seems to be the pattern over the last several months and we would not be surprised at all if the unchanged number in March is revised higher in the future. The manufacturing sector fell 0.2% in March, but was up 0.3% including upward revisions for prior months. The data we watch most closely is manufacturing production ex-autos. This figure fell 0.3% in March, but this is the first drop in nine months. That's a 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 77.8%, which is higher than the 20-year average of 77.7%. 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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