New Indicators Show Manufacturing Cooling, But Still Growing

By May 17, 2011Economy

Much of the economic data over the past couple weeks have shown manufacturing cooling somewhat in April, after strong growth in previous months. Today’s report from the Federal Reserve Board on industrial production mirrors this finding. While total industrial production was unchanged, manufacturing production fell 0.4 percent in April. Year-over-year growth in manufacturing production was 4.6 percent, reflecting the strong increases from previous months.

Prior to this month’s decline, the index had risen for nine consecutive months. Manufacturers’ capacity utilization figures also dropped in April from 74.8 to 74.4.  Supply disruptions due to the Japanese earthquake and subsequent tsunami were one of the main reasons for the decline in April. Excluding the auto sector, industrial production actually rose 0.2 percent.

Nondurable goods edged out durables for the month of April, with the former up 0.1 percent and the ladder down 1.0 percent. Among the strongest gainers for the months in manufacturing were textile and product mills (up 2.4 percent), aerospace and miscellaneous transportation (up 1.3 percent), printing and support (up 1.3 percent), and computer and electronic products (up 1.1 percent). The largest monthly declines were in motor parts and vehicles (down 8.9 percent, reflecting parts shortages), petroleum and coal products (down 2.9 percent), electrical equipment, appliances and components (down 2.3 percent), and primary metals (down 1.1 percent).

These findings were similar to the conclusions reached in the new Empire State Manufacturing Survey for May, which was released yesterday by the New York Federal Reserve Bank. It found that businesses continue to expand but at a slower pace.  The index of general business conditions fell from 21.7 to 11.9 (with positive numbers indicating growth). New orders and shipments fell for the month, with inventories up.

The survey respondents continue to cite rising input prices such as materials and higher energy costs, with the index for prices paid increasing from 57.7 to 69.9, continuing an ascent that began in November 2010. Meanwhile, the report shows the average employee workweek and number of employees edging higher – a sign that continued growth in the sector is leading to additional hiring. Manufacturers remain cautiously optimistic about growth over the next six months.     

Chad Moutray is chief economist, National Association of Manufacturers.

Update: Chad breaks down the Industrial Production report in this video:

Chad Moutray

Chad Moutray

Chad Moutray is chief economist for the National Association of Manufacturers (NAM), where he serves as the NAM’s economic forecaster and spokesperson on economic issues. He frequently comments on current economic conditions for manufacturers through professional presentations and media interviews. He has appeared on Bloomberg, CNBC, C-SPAN, Fox Business and Fox News, among other news outlets.
Chad Moutray

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