April’s production was 1.0% higher, following an increase of 0.4% in March; a rise of 0.4% was anticipated. At 76.7%, capacity utilization in April continues to be quite low. Historically, this would have signaled very low inflationary pressures, though in recent years the relationship between capacity utilization and inflation has broken down considerably.
With regard to production by sector, activity was relatively positive. Production rose the most for consumer goods, business equipment, and mining. Automobile assemblies increased in April; though the annual rate of change remains negative, as it has every month except for 4 of the last 24 months. The industry continues to suffer for faltering demand and excessive levels of inventories. Utilities production returned to a more normal growth rate in the month, following the 8.2% jump in March, which was the result of the warmer weather through January and February. If utilities were excluded, production would have been 1.0% higher in the month.
In terms of the “hard data” industrial production is slowly rising, whilst the “soft data” has already started to retrace some of its surge following the Trump election. Meanwhile, energy and related production is now positive on an annual basis and adding to aggregate production, though aggregate production continues to suffer for weaker motor vehicle assemblies. Since the start of this economic recovery, in terms of major sectors, mining has grown the fastest, while consumer goods production has continue to lag the aggregate index. With the inventory correction through 2015 and 2016 over, prices for commodities more stable, and demand for productivity-enhancing technology bound to increase as wages and salaries increasingly pressure margins, the outlook for industrial production continues to look reasonably solid.
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Richard de Chazal, CFA is a London-based macroeconomist covering the U.S. economy and financial markets.