After strong rebounds in February and March, manufacturing production declined 0.4 percent in April, according to the Federal Reserve Board. Manufacturing output has risen 1.5 percent and 0.7 percent in February and March, respectively, following a sharp decline in January related to winter storms. Even with the decrease in April, production in the sector has risen 2.9 percent over the past 12 months, down slightly from 3.1 percent in March.
Capacity utilization also eased a bit in the manufacturing sector, down from 76.9 percent in March to 76.4 percent. This brought the utilization rate back to where it was in December. On a year-over-year basis, manufacturing capacity has grown 2.1 percent.
The underlying data by sector were mixed but lower, with 12 of the 19 major sectors experiencing reduced output for the month. Durable goods and nondurable good production both declined, down 0.3 percent and 0.4 percent, respectively. The largest monthly declines were seen in the machinery (down 1.6 percent), petroleum and coal products (down 1.6 percent), primary metals (down 1.6 percent), furniture and related products (down 1.2 percent), and plastics and rubber products (down 1.0 percent) sectors.
In contrast, areas with increased production in April included aerospace and miscellaneous transportation (up 1.3 percent), nonmetallic mineral products (up 0.5 percent), wood products (up 0.4 percent), apparel and leather (up 0.2 percent), and motor vehicles and parts (up 0.1 percent). Looking at broader categories, production in both energy (down 1.2 percent) and high-technology industries (down 0.2 percent) were lower.
While manufacturing activity in April was slightly disappointing, it is important to note that output continues to reflect modest gains year-over-year, particularly for durable goods firms (up 4.3 percent). Nondurable goods activity has declined 0.35 percent, however, over the past 12 months. The largest year-over-year gains were in the apparel and leather (up 7.5 percent), motor vehicles and parts (up 6.8 percent), nonmetallic mineral products (up 6.0 percent), machinery (up 5.0 percent), and wood products (up 4.9 percent).
Meanwhile, overall industrial production declined 0.6 percent in April, following 0.9 percent and 1.1 percent gains in February and March. Mining activity (up 1.4 percent) increased for the second straight month, but this was offset by declines in manufacturing (see above) and utilities (down 5.3 percent). Industrial production rose 3.5 percent between April 2013 and April 2014, reflecting modest gains, but this was down from a 3.9 percent pace the month before. Capacity utilization was lower, as well, down from 79.3 percent to 78.6 percent.
In conclusion, the U.S. economy has started 2014 at a much slower pace than anticipated, particularly given the strong momentum seen at the end of 2013. While manufacturers have begun to rebound from winter-related softness earlier in the year, it remains clear that output growth has not fully recovered to the pace seen just a few months ago.
We remain hopeful for the demand and production to accelerate in the coming months, but April’s decline in activity shows just how fragile our recovery has been. Manufacturers are cautiously optimistic about increased activity this year, but there is also nervousness that such progress will be fleeting, much as it has in previous years. We can’t afford to continue the “one step forward, two steps back” trend – it is costing us the ability to truly compete in the global economy – policymakers must combat that trend with pro-growth measures that allow manufacturers to make sustained investments and grow their businesses.
Chad Moutray is the chief economist, National Association of Manufacturers.
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