March 2013 Industrial Production, Capacity Utilization and Capacity

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Industrial production (IP) rose 0.4 percent in March after having increased 1.1 percent in February. For 1Q2013 as a whole, output moved up at an annual rate of 5.0 percent, its largest gain since 1Q2012. At 99.5 percent of its 2007 average, total industrial production in March was 3.5 percent above its year-earlier level.

Manufacturing output edged down 0.1 percent after having risen 0.9 percent in February; the index advanced at an annual rate of 5.3 percent in 1Q. Industrial production of Wood Products decreased by 0.5 percent while Paper fell by an even greater 0.9 percent relative to February.

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The rate of capacity utilization for total industry moved up in March to 78.5 percent, a rate 1.2 percentage points above its level of a year earlier but 1.7 percentage points below its long-run (1972-2012) average. Capacity utilization decreased for both Wood Products and Paper (-0.4 and -0.8 percent, respectively).

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Capacity at the all-industries and manufacturing levels moved higher (0.1 and 0.2 percent, respectively). By contrast, both Wood Products and Paper fell by 0.1 percent.

The Fed’s IP report was broadly consistent with the Institute for Supply Management’s March PMI, which registered 51.3 percent, a decrease of 2.9 percentage points from February (50 percent is the breakpoint between contraction and expansion). March’s PMI represented the biggest miss to expectations (of 54.0) in 13 months -- below the lowest estimate, in fact -- driven by a collapse in new orders.

The New York Fed’s Empire State Manufacturing Survey is another contemporary source that is often useful for comparison (despite the different geographic reach and time frame). The April 2013 survey suggested that conditions for New York manufacturers may be stagnating. The index, which dropped for the second month in a row, printed at just 3.05 (its lowest reading since January), down from 9.24, and well below expectations of 7.00.

To sum up, then, one can cherry pick data to support almost any opinion of the state of U.S. manufacturing, but the broad-range perspective appears to corroborate the view of slowing growth.

The foregoing comments represent the general economic views and analysis of Delphi Advisors, and are provided solely for the purpose of information, instruction and discourse. They do not constitute a solicitation or recommendation regarding any investment.