US industrial production declines as US and global economic growth falls

• Industrial production unexpectedly drops in March
• Annual increase is the smallest in 18 months
• Factory sector flat following two negative months

The output of the US industrial plant declined for the second time in three months as slowing growth at home and overseas may be beginning to affect factory orders.

Industrial production, the operating measure of America's factories, mines and utilities, slipped 0.1% in March after gaining 0.1% in February and falling 0.3% in January. It was only the second decrease in the last ten months, reported the Federal Reserve on Tuesday. The median consensus forecast was for production to rise 0.2%.   On the year output was 2.77% higher, the smallest increase since September 2017 and down from February’s revised 3.47% gain.

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Manufacturing production which is the largest part of overall industrial output was flat in March after two straight months of decline -0.3% in February and -0.5% in January.  In the first quarter of this year the output of US factories fell at a 1.1% annualized rate.

Manufacturing activity tends to be the industrial sector most sensitive to economic growth even though at 15% it is a relatively small share of GDP. The long lead times for manufactured products requires demand estimates and materials purchases six to 18 months or more into the future.

The American economy expanded at a 3% quarterly average last year its best performance in over a decade.  Growth peaked at 4.2% annualized in the second quarter, fell to 3.4% in the third and 2.2% in the final three months. The expansion has continued at a similar pace in the just ended first quarter with the Atlanta Fed GDPNow model April 8^th prediction at 2.3%. An update is due on Wednesday April 17^th.

The International Monetary Fund this month has reduced its projection for global growth in 2019 to 3.3% from 3.5% in January and 3.7% last October.

Purchasing manager’s indexes in manufacturing from the Institute for Supply Management, commonly cited gauges of present and pending activity have declined in recent months from their strong levels last year.  But the latest measures in overall business, new orders and employment remain firmly in expansion territory.

Reuters

Reuters

The National Federation of Independent Business Optimism Index registered 101.8 in March up 0.1 point on the month. It has declined from its two-year surge it remains above every post-recession  pre-election score. 

Reuters

Despite the recent retreat in the manufacturing sector there is no incipient recession in any of these sets of numbers. 

Capacity utilization, the percentage of the US industrial plant in use decreased to 78.8% in March from February’s revised rate of 79.0%. Manufacturing utilization fell 0.1% to 76.4%.