Industrial Production Increases in First Quarter

April 19, 2011

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Following a modest slowdown in February, U.S. industrial output expanded at a faster pace in March, boosting first-quarter production to a solid annual growth rate.

Industrial production in the United States increased 0.8 percent in March, following an upwardly revised 0.1 percent gain in February, according to the U.S. Federal Reserve's latest industrial sector report. This marked the fifth consecutive month of industrial output growth and set a 6 percent annual growth rate for the first quarter as a whole.

Released last week, the Fed report indicates that much of last month's production gain was due to a rise in manufacturing production, which constitutes the largest portion of overall industrial production. Manufacturing output rose 0.7 percent in March following a 0.6 percent gain in February and a 0.8 percent increase in January. March manufacturing production climbed to 6.6 percent above its prior-year level.

Following two months of severe declines due to seasonal weather changes, utilities output rebounded in March, rising 1.7 percent and reaching 1.5 percent above the March 2010 level. Mining production also made gains last month, increasing 0.6 percent and climbing to 5.4 percent above the prior-year level.

At 93.6 percent of its 2007 average, total industrial production remained 5.9 percent higher in March 2011 than in March 2010. The 0.8 percent gain exceeded expectations, as economists polled by MarketWatch had forecast a 0.6 percent increase for the month.

"Manufacturing has been a key driver of economic growth since the recession ended. That continued last month, even with supply chain disruptions stemming from the crisis in Japan," the Associated Press reports. "Overall industrial production has risen about 12 percent since its recession-low in June 2009. It is still about 7 percent below its pre-recession peak, reached in September 2007."

The largest production gains last month were in nonindustrial construction supplies, which rose 1.5 percent from February. Since hitting a low point in December 2009, construction output has climbed 12 percent, although it remains 25 percent below its December 2006 peak.

Consumer goods also performed well, increasing 0.9 percent in March for an annual rate of 4.9 percent in the first quarter. In particular, consumer durable goods posted 2.1 percent growth last month, with gains in nearly every major category. Automotive products advanced 3.6 percent and climbed to 15.4 percent above the March 2010 level, while home electronics production increased 0.7 percent.

Production of business equipment rose 0.4 percent in March, following three consecutive months of steady gains of 1 percent or more. For the first quarter as a whole, business equipment output grew at annual rate of 15.3 percent. Following a 0.1 percent decline in February, materials output rose 0.8 percent in March and grew at an annual rate of 5.4 percent in the first quarter.

"The results suggest the economic rebound is spreading to consumers after depending heavily on business spending earlier in the recovery," AP notes. "Consumers spent more in March and the unemployment rate fell to its lowest level in two years."

Meanwhile, capacity utilization — which measures how much of the industrial sector's production capabilities are being used — totaled 77.4 percent in March, up from 76.9 percent in February, but still 0.5 percent below the prior-year level.

Although the industrial sector is not yet running at optimal capacity, the continuing month-to-month gains and strong quarterly growth suggest that industrial production will continue to recover. However, it remains to be seen whether negative supply chain effects caused by the disasters in Japan will temper expansion.

"Factories in the U.S. are benefiting from gains in business investment, expanding economies overseas and inventory rebuilding," Bloomberg News reports. "The pace of production may cool temporarily as some factories scramble to replace supplies of parts interrupted after last month's earthquake and tsunami in Japan."

Earlier

Industrial Production Inches Downward in February

U.S. Industrial Production Dips in January

Resources

Industrial Production and Capacity Utilization U.S. Federal Reserve, April 15, 2011

U.S. Industrial Output Rises Solid 0.8% by Greg Robb MarketWatch, April 15, 2011

Factories Boost Output for 9th Straight Month Associated Press, April 15, 2011

Industrial Production in U.S. Increased 0.8% in March, More than Estimated by Timothy R. Homan Bloomberg News, April 15, 2011

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