March’s production was 0.5% higher, following an increase of 0.1% in February. At 76.1% in March, capacity utilization continues to be quite low following. Historically, this would have signaled very low inflationary pressures, though in recent years the relationship between capacity utilization and inflation has broken down considerably (as discussed in our recent Economics Weekly).
With regard to production by sector, activity was mixed. Production rose for utilities, consumer goods, materials, and mining. Automobile assemblies continue to decline, falling 8.6% in March; this was the fourth consecutive decline as the industry continues to grapple with very high inventories and soggy demand. Utilities production jumped the most in its history, up 8.6%, “as demand for heating returned to seasonal norms after being suppressed by unusually warm weather in February.” If utilities were excluded, production would have been 0.4% lower in the month. Excluding energy it would have also been 0.4% lower.
The industrial production data continues to be a key indicator in the “hard data” camp, which we are waiting to see follow the sharp increase in expectations gleaned from the “soft data,” such as NFIB small business sentiment and the ISM. Much of this rise in sentiment is on the back of expectations that the Trump administration will manage to reduce regulations, cut taxes, and increase infrastructure spending. While all of these are still possible, markets are beginning to fear that momentum has already been lost following the failure of the healthcare repeal, and more generally that getting reform through Congress is proving to be much trickier than expected. While it is still possible for the president to set the ball rolling on infrastructure spending without the need for congressional approval, at the moment, this seems less of a priority, particularly when staff are becoming more stretched on the ground with their own briefs, and, increasingly, geopolitical issues.
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Richard de Chazal, CFA is a London-based macroeconomist covering the U.S. economy and financial markets.