U.S. Industrial Production Unexpectedly Drops In April

by Ike Obudulu Posted on May 15th, 2019

Washington: Industrial production in the U.S. unexpectedly showed a notable decrease in the month of April, according to a report released by the Federal Reserve on Wednesday.

The Fed said industrial production fell by 0.5 percent in April following a revised 0.2 percent uptick in March.

Economists had expected production to come in unchanged compared to the 0.1 percent dip originally reported for the previous month.

The unexpected drop in production partly reflected a sharp pullback in utilities output, which plunged by 3.5 percent in April after jumping by 2.2 percent in March.

Manufacturing output also slumped by 0.5 percent in April after coming in unchanged in the previous month.

On the other hand, the Fed said mining output surged up by 1.6 percent in April after falling by 0.4 percent in March.

“The weakness in industrial production, while worse than expected in April, is consistent with an expected inventory correction,” said FTN Financial chief economist Chris Low.

The report also said capacity utilization for the industrial sector dropped to 77.9 percent in April from a revised 78.5 percent in March.

Economists had expected capacity utilization to edge down to 78.7 percent from the 78.8 percent originally reported for the previous month.

Capacity utilization in the utilities and manufacturing sectors dropped to 76.2 percent and 75.7 percent, respectively, while capacity utilization in the mining sector rose to 91.4 percent.

Note. The statistics in this release cover output, capacity, and capacity utilization in the U.S. industrial sector, which is defined by the Federal Reserve to comprise manufacturing, mining, and electric and gas utilities. Mining is defined as all industries in sector 21 of the North American Industry Classification System (NAICS); electric and gas utilities are those in NAICS sectors 2211 and 2212. Manufacturing comprises NAICS manufacturing industries (sector 31-33) plus the logging industry and the newspaper, periodical, book, and directory publishing industries. Logging and publishing are classified elsewhere in NAICS (under agriculture and information, respectively), but historically they were considered to be manufacturing and were included in the industrial sector under the Standard Industrial Classification (SIC) system. In December 2002 the Federal Reserve reclassified all its industrial output data from the SIC system to NAICS.

Officials at the Fed tend to look at capacity use measures for signals of how much “slack” remains in the economy how far growth has room to run before it becomes inflationary.

The Fed’s monthly data are volatile and often get revised. Manufacturing, which makes up 75 percent of total industrial production, accounts for about 12 percent of the U.S. economy

Industrial production, also called, factory output measures change in the total inflation-adjusted value of output produced by manufacturers, mines, and utilities;

It’s a leading indicator of economic health – production reacts quickly to ups and downs in the business cycle and is correlated with consumer conditions such as employment levels and earnings.

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