Picking Up Steam: Fed Reports Rise in Industrial Production

By May 14, 2010Economy, Trade

The Federal Reserve reported today that manufacturing production rose a solid 1.1 percent in April — the third increase in the past four months. This is an encouraging sign that the manufacturing recovery continued to gain steam entering the second quarter.

The April rise in manufacturing production was broadly based, with 17 of the 19 major manufacturing industries posting gains, up from 16 in March and nine in February. The upturn was likely driven by four factors: housing, business inventories, exports and business investment. Business inventories and housing likely will begin to moderate in the near-term as inventory stocks, which have been depleted, catch up with domestic demand and the recent surge in housing activity wanes following the end of the homebuyer tax credit. Exports and business investment likely will be more solid sources of growth moving forward. The global economy, especially in Latin America and Asia, is on the rebound, and American industry’s demand for equipment should start to improve in the second half of 2010 as we continue to see evidence that a self-sustaining recovery finally is emerging. Therefore, I expect the pace of the manufacturing recovery will moderate somewhat in coming months.

Manufacturers still have a lot of ground to make up. After falling 17 percent from December 2007 to June 2009, the level of manufacturing production remains 10 percent below its prior peak. Even if the pace attained over the past 10 months continues, manufacturing production will not reach is pre-recessionary peak until late 2011 at the earliest.

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