May 25, 2015
U.S. industrial output extended its monthslong tumble into April, providing the latest evidence of the economy struggling to rebound after stalling out in the early months of the year.
Industrial production, which measures the output of U.S. manufacturers, utilities and mines, decreased a seasonally adjusted 0.3% from the prior month, the Federal Reserve said Friday. It was the fifth consecutive monthly decline.
Capacity utilization, a measure of slack in the industrial sector, fell four-tenths of a percentage point to 78.2% in April. Lower capacity utilization could reflect businesses holding off on investment and consumers avoiding major purchases, damping economic growth. At its current level, capacity utilization was slightly below its long-run average recorded since 1972.
Overall industrial output in April was up just 1.9% from a year earlier.
“These data are emblematic of the slowdown in the factory sector in 2015,” Amherst Pierpont chief economist Stephen Stanley said. “Manufacturing was one of the strongest areas of growth for the economy last year, but the strong dollar has taken a toll on exports and the slowdown in oil and gas production has also rippled through a number of goods-producing industries. “
Weaker industrial production is consistent with an economy that has been slowing throughout the year. Economists now estimate economic output shrank by as much as 1% in the first quarter, and hopes for a spring rebound are dimming.
U.S. employers added 223,000 jobs in April, the Labor Department said last week, and the number of people applying for first-time unemployment benefits is near record lows.
Despite signs of broad health in the labor market, however, consumer spending has stalled and business investment, especially in the energy sector, has dropped off.
U.S. retail sales barely budged in April, and are down or flat in four of the past five months, the Commerce Department said this week. And consumers turned more skeptical about the economy in early May, according to data released Friday by the University of Michigan.
Meanwhile, the price of imported goods fell last month, the Commerce Department said Wednesday, suggesting weak global demand and a stronger dollar continue to hold back inflation.
U.S. industrial production had been mixed through the second half of last year, before dropping off in December. In the first quarter of 2015, industrial production posted the first quarterly decline since the recession ended, the Fed said last month.
Economists surveyed by The Wall Street Journal had forecast a 0.1% decline in industrial production in April and a capacity utilization rate of 78.3%.
March’s industrial production reading was revised to a 0.3% decline from a 0.6% fall. But February’s gain of 0.1% was revised lower to a 0.1% decline.
Manufacturing output, which accounts for about three-quarters of overall industrial production, was unchanged in April. A small increase in the production of long-lasting durable goods, including wood products, motor vehicles and appliances, was offset by a small decrease in nondurable goods like food, beverages and tobacco products, the Fed said.
March’s manufacturing figure was raised to 0.3%, from a previously reported gain of 0.1%.
Another gauge of factory activity, released Friday by the Federal Reserve Bank of New York, showed business activity growing again among the state’s manufacturers. But it wasn’t growing by as much as economists expected, and it wasn’t enough to lead to an acceleration in hiring this month.
“The recent performance in manufacturing-sector activity in particular does not necessarily inspire any confidence that the economic recovery has moved much beyond the first-quarter soft patch,” TD Securities analyst Millan Mulraine said.
Still, some economists said they expect growth to pick up in the months ahead, as the effects of low oil prices and severe winter weather continue to wane.
Mining output, the second-biggest component of industrial production, fell by 0.8%, the fourth straight monthly decline. The drop off largely reflected a sharp decline in oil and gas drilling, which fell by 14.5% last month and is down 46.5% from a year ago.
The oil and gas industry, a mainstay through much of the recovery, has faced plummeting crude oil prices brought on by rising supplies. Those prices have stabilized after bottoming out in March.
“These numbers don’t look great, but they are exactly what should be expected in the immediate aftermath of a plunge in oil prices in a country which is a big oil producer as well as a huge consumer,” said Ian Shepherdson, chief economist for Pantheon Macroeconomics. “The pain in the oil-producing sector comes first, with the gains later.”
The final component of industrial production, which measures utility output, decreased by 1.3% in April, likely the result of warmer-than-usual temperatures across much of the country.
Source: The Wall Street Journal