Industrial Production In March Is Flat… Again

The view that the economy’s recent strength was boosted by a warm winter looks a bit more convincing after reviewing this morning’s March report on industrial production. After strong gains in December and January, March delivered the second straight month of no change in the Fed’s industrial production index.

The annual trend in industrial production is still comfortably positive, with March activity higher by 3.8% vs. the year-earlier level. That’s a sign that the economy’s still growing, although the annual pace is down more than slightly from February’s 4.6% rate. Is that merely a technical adjustment that reflects the warm winter factor, which is now fading as we move into spring? Or is there something deeper going on that threatens to bite the cycle down the road?
In the wake of two back-to-back months of flat-lining in the monthly data, the modest retreat in the annual rate looks a bit troubling. But it’s hard to say if there’s something more than short-term noise here and so it’s premature to assume that there’s something darker in the works. Indeed, even a 3.8% annual rise in industrial production, assuming we hug this rate for the foreseeable future, is a healthy pace.

Still, it’s hard to forget that job growth slowed sharply last month. Is industrial production confirming that the economy’s pace is facing new headwinds? The next major clue arrives on Thursday, with the arrival of fresh jobless claims data. But expectations are muted for thinking there’s a dramatic improvement heading our way. The consensus forecast for new claims sees a slight drop in the next update from the previous week, according to If so, that would be welcome, but hardly a game changer one way or another.
Meantime, we’re left to ponder the deeper meaning of the weakness in the latest industrial production figures. “It’s evidence of some slowing in the manufacturing sector, which I’m not entirely surprised because of what’s happening in Europe and the end of the tax depreciation on equipment allowance,” advises Craig Dismuke, chief economic strategist at Vining Sparks in Memphis, via Reuters. “My expectation going forward is that manufacturing will chug along at a moderate pace from business investment and consumer spending. But you will see exports dry up a bit.”
That doesn’t sound like the end of the world (or the demise of the recovery). But with two straight months of zilch staring us in the face, the margin for negative surprises is getting uncomfortably thin.