Implications: Outside the auto sector, industrial production was soft in April, with overall production declining 0.3%, the fifth consecutive monthly decline. However, the weakness in April was largely due to temporary factors. Due to milder temperatures, utility output declined 1.3%, on the back of a large 5.4% decline in March. 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 14.5% in April. This measure is now down 46.5% from a year ago and pulled down the mining component of industrial production, which fell by 0.8% in April. The good news is that energy prices look to have stabilized, so mining production should soon bottom out. And if energy prices bounce at all, mining will bounce as well. Taking out mining and utilities gives us manufacturing, which was unchanged in April as auto output rose 1.3% 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 again in April. If so, that's another reason to expect a bounce in production in the months ahead as supply channels improve. 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 78.2%, 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 3.1 in May versus -1.2 in April.
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Posted on Friday, May 15, 2015 @ 12:05 PM
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