Industrial Output Posts Fourth Consecutive Strong Gain

Industrial Output Posts Fourth Consecutive Strong Gain

Robert Hughes

Industrial production increased 1.1 percent in April following a 0.9 percent gain in March, a 1.0 percent increase in February, and an 0.8 percent rise in January. The gains result in a very robust 11.9 percent annualized pace for the first four months of 2022 and pushes total industrial output to its highest level ever, and well above the December 2019 level prior to the pandemic (see first chart). Over the past year, total industrial output is up 6.4 percent.

Total industrial capacity utilization increased 0.8 points to 79.0 percent from 78.2 percent in March, the highest since December 2018 (see first chart). However, total capacity utilization remains slightly below the long-term (1972 through 2021) average of 79.5 percent.

Manufacturing output – about 74 percent of total output – posted a 0.9 percent increase for the month, also the fourth consecutive strong gain (see first chart). Manufacturing output is at its highest level since July 2008 and is 4.4 percent above its December 2019 pre-pandemic level (see first chart). From a year ago, manufacturing output is up 5.8 percent.

Manufacturing utilization increased 0.6 points to 79.2 percent, well above the December 2019 level of 75.6 percent and the highest level since April 2007, and above its long-term average of 78.1 percent. However, it remains well below the 1994-95 high of 84.7 percent (see first chart).

Mining output accounts for about 14 percent of total industrial output and posted a strong 1.6 percent increase last month (see top of second chart). Over the last 12 months, mining output is up 8.6 percent.

Utility output, which is typically related to weather patterns and is about 12 percent of total industrial output, jumped 2.4 percent (see top of second chart) with natural gas up 4.4 percent and electric up 2.1 percent. From a year ago, utility output is up 7.5 percent.

Among the key segments of industrial output, energy production (about 27 percent of total output) increased 1.8 percent for the month (see bottom of second chart) with gains across all five components. Total energy production is up 7.6 percent from a year ago.

Motor-vehicle and parts production (slightly under 5 percent of total output), one of the hardest-hit industries during the lockdowns and post-lockdown recovery, continues to be impacted by a semiconductor chip shortage, though output rose again in April. Motor-vehicle and parts production increased 3.9 percent for the month following an 8.3 percent surge in March (see bottom of second chart). From a year ago, vehicle and parts production is up 17.0 percent.

Total vehicle assemblies rose to 10.58 million at a seasonally-adjusted annual rate. That consists of 10.26 million light vehicles and 0.32 million heavy trucks. Within light vehicles, light trucks were 8.42 million while cars were 1.84 million.

The selected high-tech industries index fell 0.3 percent in April (see bottom of second chart) but is up 8.3 percent versus a year ago. High-tech industries account for just 1.9 percent of total industrial output.

All other industries combined (total excluding energy, high-tech, and motor vehicles; about 67 percent of total industrial output) rose 0.6 percent in April (see bottom of second chart). This important category is 5.2 percent above April 2021. 

Industrial output posted a robust, broad-based gain in April, the fourth strong gain in a row. While disruptions to labor supply, rising costs and shortages of materials, and logistical and transportation bottlenecks continue to challenge manufacturers, output has risen significantly, just not enough to meet the higher demand that has emerged following the lockdown recession.

The shortfall is contributing to sustained upward pressure on prices. Combined with ongoing waves of new COVID-19 cases around the world, particularly China, disruptions surrounding the Russian invasion of Ukraine, and a new Fed tightening cycle, there continues to be an elevated level of uncertainty for the economic outlook. 

Courtesy: (AIER)

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