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Economy in Brief

U.S. Factory Production Shortfall Eases
by Tom Moeller May 15, 2009

The severity of the downturn in industrial output eased last month, according to the industrial production figures published by the Federal Reserve. Output, which includes mining and utilities, declined an expected and moderate 0.5%, which was by far the smallest decline of this recession. The drop followed declines between one and four percent during the prior several months. Declines in the factory sector alone have eased as well. The 0.3% April shortfall was the smallest since February and compares to monthly declines between one and three percent during this recession.

Output of consumer goods overall was unchanged last month and the year-to-date rate of decline eased to 7.3%. Last month, production of autos actually increased, though it's down at a 44.4% rate this year. Conversely, furniture output posted a 2.8% decline last month and it's down at a 23.7% rate so far this year as consumers continue to shy away from purchases of large durable goods. Apparel output fell 1.3% and the three-month rate of -17.3% is half that of its worst. Even the pace of the decline in the production of business equipment seems to have eased with a 0.5% decline, though the three-month rate was near its worst at -23.6%. The downturn in the housing market continued to lower output of construction supplies. It fell 1.1% and the three-month rate of decline eased to a "modest" 23.4%.

Even in the high-tech sector the rate of decline in output slowed. Here, industrial production fell 0.8% last month and at a reduced 13.5% rate during the last four. Less high tech, overall industrial production fell a reduced 0.4% last month and the annual rate of change eased to -15.3%.

O.K., so the slowing pace of output declines is largely in autos and the high-tech sector. But outside of these two sectors, output moderated to a 0.5% decline last month, less than one-third the March drop. The three-month rate of decline was still near its worst at a -13.4% annual rate.

Excess capacity grew even further last month. Capacity utilization fell to 69.1%, a record low for the series which dates to 1966. Utilization in the factory sector dropped even harder to 65.7% from a peak near 80% back in 2007. The latest rate was a record low since WW II.

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

Ties that Bind: Bilateral Trade's Role in Synchronizing Business Cycles from the Federal Reserve Bank of Dallas is available here.

INDUSTRIAL PRODUCTION (SA, %) April March Y/Y 2008 2007 2006
Total Output -0.5 -1.7 -12.5 -2.2 1.5 2.3
   Manufacturing -0.3 -2.1 -14.5 -3.2 1.4 2.5
     Consumer Goods 0.0 -0.3 -6.6 -2.6 0.9 0.4
     Business Equipment -0.5 -2.9 -13.9 -1.1 2.7 9.4
     Construction Supplies -1.1 -2.8 -20.0 -6.3 -2.0 2.3
  Utilities 0.5 1.8 -3.2 0.3 3.4 -0.6
Capacity Utilization 69.1 69.4 79.2 (April '08) 77.6 80.6 80.9
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