Industrial production surprised to the upside in April with a 1% m/o/m gain, well above the estimate of up .4% but was it for good reason? The main factor in the upside was on the manufacturing side due to a 5% m/o/m jump in auto production after a 3.6% decline in March. This brings the y/o/y increase to 4% and I asked whether it was for ‘good reason’ because the over inventoried dealer lots don’t need any new cars/trucks right now. The production of machinery was up by .9% m/o/m and 2.8% y/o/y while computers/electronics grew by .1% m/o/m and 4.6% y/o/y. Utility output also helped to boost the headline figure with a .7% rise as weather plays around with this component. The rise in commodity prices helped bring more supply in the mining sector which added 1.2% m/o/m of production and 7.3% y/o/y after a tough few years.
Capacity utilization rose to 76.7% from 76.1% and that is the most since August 2015 but still remains well below its long term average of around 80%. Specifically within auto’s, capacity utilization stood at 84%, the most since it printed 84.4% in July 2015 and this is most likely the high in this cycle. It peaked at 80.7% in the mid 2000’s expansion and 85.6% in January 2000. Capacity rationalization is ahead in the auto sector.
Bottom line, as the April and May data has rolled in, we’re seeing a mixed bag of data and certainly not this robust bounce back from the pretty lame Q1 that so many are hoping for. The US Citi Surprise index yesterday also reflects this as it closed at the weakest level in a year.
MANUFACTURING INDUSTRIAL PRODUCTION still has a ways to go: