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Business DirectoryCalendarCouponsArticles INDICATOR: March Industrial Production

KEY DATA: IP: +0.3%; Manufacturing: +0.1%

IN A NUTSHELL:   “The manufacturing sector may not be expanding but it is not contracting either, which is good news.”

WHAT IT MEANS:   Industrial output rose in March helped by a surge in utility output.  Weather, not fundamentals likely created the large utility increase as there was a major decline in February.  As for manufacturing, the sector rebounded from a huge cut back in production in February.  There have been output increases posted in four of the last five months.  Yes, they were modest, but the gains indicate the sector is not crashing.  In March, thirteen of the nineteen manufacturing groups posted a rise in production.  The faltering motor vehicle sector was the biggest loser, dragging down related areas such as metals, rubber and plastic goods.  The gasoline price surge has caused the firms to greatly cut back assemblies of gas-guzzling trucks.  Apparel was also weak.  On the other hand, computers, electrical equipment and appliances, furniture, aerospace, food and paper all posted solid jumps in production.  

MARKETS AND FED POLICY IMPLICATIONS: Industrial production declined during the first quarter and providing further evidence that a negative GDP growth is possible.  If it does come in positive, there will likely have been an awful lot of undesired inventories that built up, which is likely be drawn down during the second quarter.  That said, manufacturing is not totally in the dumps.  Output is holding up in many areas not related to motor vehicles.  Thus, if we are indeed in a recession, it still doesn’t look to be that deep.  Since this is the Fed’s own numbers, they will likely gain some hope from this report that any slowdown will not be extreme.  Still, a rate cut on April 30th is likely, just not a large one.  More reports like this one and the markets may actually come to that same opinion.  
Joel L. Naroff, Commerce Bank