Industrial Production Rises 0.4 Percent on Weather-Related Utility Output

Industrial production rose 0.4 percent in March after having increased 1.1 percent in February. However, this was primarily due to cold weather that resulted in a 5.3 percent increase at an annual rate in the output of utilities. For the first quarter as a whole, output moved up at an annual rate of 5.0 percent, its largest gain since the first quarter of 2012. Of perhaps more interest to investors, the more economically-sensitive category of manufacturing output edged down 0.1 percent in March after having risen 0.9 percent in February. Some giveback in March might be expected after the strong February gain. The manufacturing index advanced at an annual rate of 5.3 percent in the first quarter as a whole. Manufacturing output is 2.5 percent higher than twelve months ago. Meanwhile, production at mines, which includes energy drilling, decreased 0.2 percent in March and edged down in the first quarter. At 99.5 percent of its 2007 average, total industrial production in March was 3.5 percent above its year-earlier level. The rate of capacity utilization for total industry moved up in March to 78.5 percent, a rate that is 1.2 percentage points above its level of a year earlier but 1.7 percentage points below its long-run (1972--2012) average. When capacity utilization climbs above levels in mid-80 percent range, inflation can emerge due to production bottlenecks. We are not near those levels, so inflation may continue to remain tame. The production of consumer goods advanced 1.1 percent in March. For the first quarter, the output of consumer goods moved up at an annual rate of 6.2 percent, its largest quarterly increase since the end of 1999. In March, the production of durable consumer goods rose 0.8 percent, primarily as a result of a large increase in the output of automotive products; new auto sales have been strong in recent months. The production of nondurable consumer goods advanced 1.2 percent in March because of strength in consumer energy products. The production of business equipment edged up 0.1 percent in March after having risen 1.9 percent in February; the index increased at an annual rate of 3.8 percent in the first quarter. The index for defense and space equipment decreased 0.2 percent in March after having been unchanged in February. The output of this category fell 5.5 percent at an annual rate in the first quarter. This may likely be the result of the sequester-related cutbacks in federal defense spending. Among nonindustrial supplies, the production of construction supplies fell back 1.3 percent in March following four months of solid gains. This was the largest contributor to the pullback in manufacturing production in March. However, the output for this market group advanced at an annual rate of 15.0 percent in the first quarter following a gain of 7.2 percent in the previous quarter. Although the index has recovered considerably since its trough in December 2009, the output of construction supplies in March stood nearly 20 percent below its levels during 2007 prior to the recession.