U.S. industrial production falls sequentially in March

U.S. industrial production continued to be on a tepid growth trajectory after the partial government shutdown earlier in 2019. In all, the industrial production dropped 0.1 percent sequentially in March, after a rise of 0.1 percent sequentially in the prior month. The March reading was slightly weaker than the consensus expectations of 0.2 percent rise. The modest fall mainly reflected a fall in the mining sector, which, according to the latest revised estimates, has moved down so far this year after last fall’s declines in the price of oil. In the meantime, production in the utilities sector rose 0.2 percent sequentially, as weather continued to be near seasonal norms.

Production in the manufacturing sector moved sideways, after falls in previous months. Overall, manufacturing production remained the same in the month after the downwardly revised estimates showing average falls of 0.4 percent sequentially in January and February, with the March estimate coming in slightly softer than expectations. The unchanged March reading mainly showed softness in the volatile motor vehicle category, reflecting falls in seasonally adjusted domestic motor vehicle assemblies. The news for ex-motor vehicle production was more encouraging, with production rising 0.2 percent sequentially, after a downwardly revised 0.4 percent fall in February. Delving into details, ex-motor vehicle production was stimulated by strong rises in a few of the durable equipment categories, such as machinery and computers and electronics.

Manufacturing activity could be volatile sequentially, and it is helpful to look at moving averages to help discern the underlying trend. Smoothing through some of the noise, production in the ex-motor vehicle manufacturing sector dropped 1.5 percent on a three-month saar basis, compared with a 2.3 percent three month saar rise in November.

Even if a good portion of the recent fall can be linked to effects from the government shutdown, demand for domestic manufactured goods is clearly being weighed down by persistent influences, including the waning fiscal stimulus, softer external growth, ongoing trade policy uncertainty, and the effects of the Fed’s tightening cycle on interest-sensitive goods.

“With manufacturing typically accounting for 10-12 percent of overall US GDP, and the remainder of the economy generally less sensitive to these influences, we think that the drag on overall GDP will be muted”, said Barclays in a research report.

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