April 2010 Industrial Production Climbs More Than Forecast

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According to the Federal Reserve’s G.17 report, “Industrial production increased 0.8 percent in April after having risen 0.2 percent in March… Manufacturing output climbed 1.0 percent in April for a second consecutive month and was 6.0 percent above its year-earlier level. The increases in manufacturing continued to be broadly based across industries…At 102.3 percent of its 2002 average, total industrial output in April was 5.2 percent above its year-earlier level.” The April gain was the biggest since a 1.2 percent jump in January.

Economists forecast industrial production would increase 0.7 percent in April, according to the median of 81 projections in a Bloomberg survey. "The manufacturing sector continues to sort of lead the way in the recovery," said Julia Coronado, a senior economist at BNP Paribas in New York. Factories are "benefiting from the upswing in the inventory cycle, recovering global trade and the upswing in consumer spending," she said.

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The all-industries capacity utilization rate advanced 0.9 percent (to 73.7 percent), the highest since November 2008, and 6.5 percent above the rate from a year earlier. Wood Products and Paper both posted solid gains.

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Capacity shrank in April, not only at the all-industries level, but also in Wood and Paper.

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Because the industrial production recovery has been engineered to some extent by fiscal and monetary stimulus over the past year, there is still debate about its sustainability. In particular, some analysts wonder if current growth is merely borrowing expansion from the future. If so, 2H2010 or 1H2011 may suffer as payback kicks in. As one pundit put it, "The next several months may prove to be a crucial period for deciding what lies ahead. In essence, the snapback period of growth after the recession will be stress tested for durability through the coming weeks and months. One burden that awaits is the Herculean task of digesting the piles of debt mounting in the United States and around the world while containing inflation."