The Federal Reserve reported today that industrial production (IP) fell by 1.4 percent in February. Much of the decline was due to a 7.7 percent drop in utilities production, due to warmer weather. Meanwhile, the manufacturing component of IP fell 0.8 percent. While this marks the fifth monthly decline over the past six months, the February drop in production was much (70%) smaller than the average decline during the prior three months. Part of the reason for this more moderate downturn was that auto assemblies, after an extended holiday shut down period, experienced the biggest monthly production gain in over a decade in February. This was a one time factor.
Outside of motor vehicles, manufacturing IP fell 1.2 percent in February. While still a significant drop, this was about half the pace of decline during the prior three months. While most manufacturing industries posted lower production levels in February, the declines in some areas (wood products and nonmetallic minerals) have begun to soften. Since these two industries provide basic materials to the construction industry, today’s report is an early indication that the housing decline may be starting to find a bottom. In addition, more moderate declines in the production of consumer goods, business equipment, and materials together signal that the decline in GDP in the first quarter will more moderate than the 6.2 percent drop in the fourth quarter.