Output in the US industrial sector slumped a hefty 0.6% in March, far more more than expected. The decline marks the third monthly slide in the past four months and the biggest decrease since mid-2012, the Federal Reserve reports. More troubling is the ongoing deceleration in the year-over-year growth rate for industrial output.
Industrial production increased 2.0% for the year through last month, the slowest annual rise in nearly two years. Today’s update marks the fourth consecutive month of a lesser rate of growth. What’s more, the descent has been sharp. Output was growing at an annual pace of 4.9% as recently as November; as of today’s release, growth has slowed by more than half to a mild 2.0%.
The manufacturing component of industrial activity is decelerating as well, in part because of the strong US dollar, which is hobbling exports. The bear market in energy prices is also a factor by way of slowing operations at oil companies. In addition, “the output of utilities fell 5.9% to largely reverse a similarly sized increase in February, which was related to unseasonably cold temperatures,” the Fed noted.
One bright spot is the rise in production for the cyclically sensitive corner of durable consumer goods, including a 3.0% increase for auto products last month. Nonetheless, the general trend for industrial activity continues to weaken. It’s unclear if it’s a temporary setback or an early warning for the business cycle. This much is clear: the margin of comfort is running thin and so next month’s update will be critical for deciding if the US economy’s recent weakness is a prelude for a higher degree of trouble down the road.
“Bottom line, this data point just further confirms the soft Q1 for the U.S. economy,” Peter Boockvar, managing director at the Lindsey Group, tells RTT News. “We’ll see what kind of rebound we’ll see in Q2, which should happen with the degree being the only question.”
Meantime, the Altanta Fed’s current GDPNow estimate of virtually flat GDP growth for the first three months of this year just got another boost in today’s disappointing update on industrial production.