The manufacturing sector contracted 1.7 percent in March, according to today’s industrial production report by the Federal Reserve. This is the fifth consecutive monthly decline for manufacturing. For the first quarter, manufacturing output fell at an annual rate of 22.4 percent, the largest quarterly decline in 34 years.

Just two (motor vehicles and apparel & leather goods) of the major 19 manufacturing sectors posted gains in production in March, clearly showing that most of manufacturing remains in recession. On a more positive note, the 1.1 average percent decline over the past two months is less than half of the 2.5 average percent decline during the prior three months, signaling that the worst of the decline may be over. To that point, the first quarter decline in output was driven mainly by the dramatic 2.7 percent decline in January.

Looking ahead, today’s report signals that the unexpected rise in exports in February won’t be repeated in March. The February rise in exports was mainly driven by pharmaceutical products and, in fact, production of pharmaceuticals did rise in February. Today’s report, however, showed that pharmaceutical production reversed sharply and fell by 1 percent in March.

The production of machinery, computers and electronics, electrical equipment, and aerospace also fell in March. These capital goods sectors are the backbone of U.S. exports. So, declines in production in March were, to an extent, driven by falling exports. The rise in exports in February was likely a one-time event and not the beginning of a much-needed trend to help lift the manufacturing sector out of recession.

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