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Industrial Production: Historic Declines, Hints of Encouragement

May 15, 2020

Bottom Line: Industrial activity plunged in April, led by a near-complete shutdown of the auto industry, as expected. Capacity utilization rates fell as assembly lines halted across the country. But the closures in the auto and aerospace industries were well known, and many companies have restarted or plan to restart very soon. High-tech sectors, which require a less densely populated workplace, saw only modest declines in April. Utility generation mostly continued at an average pace, adjusted for better weather in parts of the country. Overall, the shutdowns for the novel coronavirus could prove mostly transitory for the manufacturing sectors of the economy. However, the medium-term prospects for manufacturing will depend on the consumer, where the outlook remains highly uncertain, with jobless rates still moving higher.

Industrial Production FELL by 11.25% in April, compared with market expectations for a decline of 12.0%. Moreover, the prior month was revised from -5.4% up to -4.5%. Output is now 15.0% BELOW its year-ago level.

In April, Mining Output FELL by 6.2%, and is now 7.5% BELOW its year-ago level. Utility Generation FELL by 0.9% and is now 3.9% BELOW its year-ago level.

Manufacturing Output FELL by 13.7% and is now 18.0% BELOW its year-ago level. Output in high-tech industries fell by 3.0%. Meanwhile, output in the motor vehicle industry fell by 71.7%. Excluding both the high-tech and motor vehicle industries, industrial output decreased by 10.4%.

Capacity Utilization FELL by 8.3 points to 64.9%, compared with market expectations for a smaller decline to 63.8%. Moreover, the prior month was revised from 72.7% to 73.2%. Capacity utilization rate is now 12.9 percentage points below its year-ago level and 15.1 percentage points below its long-run (1972–2015) average.

Article by Contingent Macro Advisors