Implications: Outside the auto sector, industrial production was soft in March, with overall production declining 0.6%. However, most of the weakness was due to two temporary factors -- weather and the sharp drop in oil prices. Utility output slumped 5.9% in March (the largest decline since January 2006) as weather returned to normal after the coldest February for the most people since 1979. Meanwhile, the rapid decline in oil prices and the commensurate drop in oil production caused the index for "oil & gas drilling and servicing" to decline 17.5% in March. This pulled down the mining component of industrial production, which includes oil and gas exploration, by 0.7%. The good news is that energy prices look to have stabilized, so mining production should soon bottom out at a lower level. And if energy prices bounce at all, mining will bounce as well. Taking out mining and utilities gives us manufacturing, which rose 0.1% as auto output bounced back sharply while the rest of manufacturing fell about 0.1%. Lingering parts shortages due to the West Coast port strikes that ended in late February may have hampered manufacturing outside the auto sector in March. If so, that's another reason to expect a bounce in production in the months ahead as supply channels improve. One continuing bright spot is high-tech manufacturing, which increased 0.3% in March and is up 4.0% from a year ago. The fundamentals for production growth remain in place. Companies are sitting on huge cash reserves and profits are close to record highs. In addition, at 78.4%, capacity utilization remains close to the average of 78.6% over the past twenty years, so further gains in production will give companies an incentive to build out plants and buy equipment. In other manufacturing news today, the Empire State index, a measure of manufacturing sentiment in New York, came in at a surprisingly low -1.2 in April versus 6.9 in March. We suspect that's an aberration, but we will be closely watching other regional gauges on the manufacturing sector.
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Posted on Wednesday, April 15, 2015 @ 11:03 AM
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