Industrial Production begins its roll over

Industrial production in March was up by .5% m/o/m as expected but the internals weren’t as pretty. Manufacturing production fell .4% m/o/m instead of staying unchanged as forecasted and February was revised down by two tenths. We can blame that weakness on the auto sector as production here fell a sharp 3% m/o/m and are now essentially changed y/o/y with a 1.3% rise. That should be a surprise to no one with the excessive inventories on dealer lots at the same time sales are slowing and delinquencies are rising. Machinery production also fell m/o/m but is still up 4.5% y/o/y. The production of tech products was higher by almost 1%. Mining production was flat m/o/m but up 2.9% with the stabilization in commodity prices. The headline boost was all about weather as utility output rebounded by 8.6% after falling in January and February due to the balmy winter.

Capacity utilization did rise to 76.1% as expected from 75.7% in February but again, it was all utilities. Capacity utilization in manufacturing was down and specifically with motor vehicles it fell to 80.5%, the lowest since May 2016 from 83.1% in February. Bottom line, after touching its highest level in this cycle in February, manufacturing production backed off because of the auto sector whose downturn is only just beginning. For perspective on how far below manufacturing production still is relative to the pre recession level and now on the cusp of the auto sector challenges, the index is currently at 102.9 vs the peak in December 2007 of 110. It peaked at 99.4 in the expansion before that in July 2000. See chart. This data point just helps to confirm the soft Q1 that we just saw with nominal manufacturing production up just .8% y/o/y.