Industrial Production and Capacity Utilization a Bad Omen for US GDP

Note that the March figure means the first quarter of 2015 now has an annual decline of 1.0% in industrial production. Why this matters is that it now represents the U.S. economy’s first quarterly decrease since the second quarter of 2009. Still, some 70% of GDP is still tied by most consumer spending activities.

Capacity utilization for the industrial sector decreased by 0.6% in March to 78.4%. Bloomberg was calling for 78.7%, after the prior reading of 78.9%. While this reading is 1.7 percentage points below the long-run average, it is also the lowest reading in months.

The Federal Reserve said:

The decline last quarter resulted from a drop in oil and gas well drilling and servicing of more than 60 percent at an annual rate and from a decrease in manufacturing production of 1.2 percent. In March, manufacturing output moved up 0.1 percent for its first monthly gain since November; however, factory output in January is now estimated to have fallen 0.6 percent, about twice the size of the previously reported decline. The index for mining decreased 0.7 percent in March. The output of utilities fell 5.9 percent to largely reverse a similarly sized increase in February, which was related to unseasonably cold temperatures. At 105.2 percent of its 2007 average, total industrial production in March was 2.0 percent above its level of a year earlier.

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The market will not get to see the official first GDP release until the morning of Wednesday, April 29, 2015. By that time, earnings season will have shown how many of America’s largest corporations have fared on earnings.

Stay tuned.