U.S. Industrial Production Falls 1.5%

Manufacturing decreased 1.7%

fter a similar decrease in February, industrial production fell 1.5% in March, the Federal Reserve Board reported on April 15.

For the first quarter as a whole, output dropped at an annual rate of 20%, the largest quarterly decrease of the current contraction.

Manufacturing output decreased 1.7%, and, for the first quarter as a whole, manufacturing output dropped at an annual rate of 22.5% after falling nearly 18% in the fourth quarter. The factory operating rate dropped 1.1 percentage points to a new historical low of 65.8%. The production index for durable goods fell 2.4% in March and contracted at an annual rate of more than 30% for the first quarter.

The only major component of durable manufactures to increase production for the month was motor vehicles and parts; nonetheless, output in this industry fell at an annual rate of about 67% for the quarter as a whole. The production of nondurable goods decreased 1% in March as a result of substantial declines in textile and product mills, paper products, and plastics and rubber products. Production for nondurable goods fell about 13% in the first quarter and has fallen for six consecutive quarters.

The capacity utilization rate for total industry fell further to 69.3%.

"The manufacturing recession remains widespread with 18 of the 20 major manufacturing industries declining in March and all 20 industries showing current production levels that are substantially below that of one year ago. Although virtually every manufacturing industry is declining, the vortex of the recessionary tornado seems to be moving from consumer durables to business equipment and metals. The extremely low factory utilization rate (65.8% in March) and widespread slack in the service sector takes away the need for capacity expanding machinery and equipment. Metals are paying the price of destocking," said Daniel J. Meckstroth, Chief Economist for the Manufacturers
Alliance/MAPI.

"In addition, the collapse in export demand has disproportionally hurt capital goods producers in the United States," he noted. "First quarter rates of decline help put the manufacturing recession in context. The consensus among economist is that real GDP growth in the first quarter will decline at an annual rate in the 4% to 6% range but manufacturing production fell at a horrific 22.5% annual rate in the first quarter when compared to fourth quarter 2008. Recent reports on retail sales, housing activity, and auto sales offer hope that the economy and the industrial sector is forming a bottom and the worst of this recession occurred in the first quarter. We expect the pace of the industrial decline to be much slower going forward and anticipate a return to modest growth early this fall."

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