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Economy in Brief

U.S. Factory Output Decline Is The Sharpest Since The Deindustrialization After WWII
by Tom Moeller April 15, 2009

In March, the year-to-year decline in U.S. industrial output of 12.7% was the result of reduced U.S. demand, inventory cutbacks and recessions abroad. To emphasize the size of that decline, it was the largest since the factory sector's wind-down following World War II.

It's the same story as earlier for the U.S. industrial sector. Output fell 1.5% last month, the same as an unrevised 1.5% drop during February. For 2008 and 2007, however, production was revised weaker. Consensus expectations had been for a 0.9% decline in March output.

And the rate of decline has picked up steam. During the last three months, the rate of decline of 18.5% (AR) about matches the quickest of the last few months. Factory sector output alone is off at an 18.7% annual rate during the last three months versus a full-year drop of 3.2% during 2008.

The downturn in the housing market continued to lower output of construction supplies which fell 2.7% last month and at a 30.0% annual rate during the last three. Output of consumer goods overall fell 0.4% last month and at a 12.5% rate since so far this year. Production of autos fell at a 37.3% rate while furniture output fell at a 21.9% rate so far this year after the 10.5% drop during all of 2008. Apparel output actually posted a modest March increase but it's off at a 16.5% rate so far in 2009. Production of business equipment continued lower last month by 2.4% and at a 27.6% rate for the year.

Pain has come to an area which previously was immune. Industrial production in the high-tech sector fell another 3.1% last month and at a 23.8% rate during the last three. That follows a downwardly revised 11.4% increase during all of last year. Less high tech, overall industrial production fell 1.5% during March and the annual rate of change of -18.5% was near the weakest since 1975.

Outside of the both the auto and the high tech sectors, total factory production fell 1.5% last month and the three-month annual rate of decline remained more than firm at -16.8%.

Excess capacity grew even further last month. Capacity utilization fell to 69.3%, a record low for the series which dates to 1966. Utilization in the factory sector dropped even harder to 65.8% from a peak near 80% back in 2007. The latest rate was a record low since WW II. Growth in the total productive capacity of the factory sector has slowed to 0.5% (y/y) and the growth during the last two years was revised down.

The industrial production data are available in Haver's USECON database.

INDUSTRIAL PRODUCTION (SA, %) March February Y/Y 2008 2007 2006
Total Output -1.5 -1.5 -12.7 -2.2 1.5 2.3
   Manufacturing -1.7 -0.6 -15.0 -3.2 1.4 2.5
     Consumer Goods -0.4 -0.7 -7.8 -2.6 0.9 0.4
     Business Equipment -2.4 -1.5 -14.4 -1.1 2.7 9.4
     Construction Supplies -2.7 -2.0 -21.0 -6.3 -2.0 2.3
  Utilities 1.9 -7.8 -2.8 0.3 3.4 -0.6
Capacity Utilization 69.3 70.3 79.8 (March '08) 77.6 80.6 80.9
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