The Federal Reserve (http://www.federalreserve.gov/releases/G17/Current/g17.pdf) reported today that manufacturing production was up a very solid 0.9 percent in March, the third consecutive monthly increase. However, overall industrial production edged up just 0.1 percent last month due to a steep 6.4 percent drop in utilities output.
The manufacturing upturn was driven by a 1.4 percent rise in durable goods industries, where the increase was very broad-based, ranging from wood products and furniture, to primary and fabricated metals, to machinery, electrical equipment, computers and motor vehicles.
The rise in manufacturing production is welcome evidence that the manufacturing recovery is starting to build momentum and move toward a self-sustaining expansion. Still, some temporary factors were in play in today’s report, namely improvements in weather from the unseasonably cold February as well as the movement of Easter to early April. Both of these factors likely accelerated consumer spending as well as housing activity last month. Production of consumer durable goods as well as construction supplies both surged by over 2 percent in March after falling significantly in February, indicating that these factors played a major role in the strong manufacturing performance last month. As a result, some slow down in manufacturing activity will likely take place in April.
A more durable and promising sign of recovery is that production of business equipment such as machinery, computers, and electrical equipment doubled to 1.4 percent growth in March. This increase was likely driven by two factors: continued strong export growth and domestic businesses becoming more confident to begin to invest in capital. Continued upturns in export growth and business investment is critical to keeping the nascent manufacturing recovery and modest upturns in employment on track in the months ahead.
Dave Huether is Chief Economist of the National Association of Manufacturers.