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Economic Watch: Industrial Production Falls, Wholesale Prices Up

June 15, 2016

By Evan Lockridge

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A decline in manufacturing activity helped push down the amount of output from the nation’s factories, mines and utilities in May, while prices at the wholesale level moved higher for the second straight month, according to economic reports released Wednesday.

The U.S. Federal Reserve reported industrial production fell 0.4% in May after a downwardly revised 0.6% increase during April. The decline was worse than a consensus estimate by Wall Street analysts and is the seventh drop in of the past nine months, according to MarketWatch.

The output of manufacturing moved down 0.4%, led by a large step-down in the production of motor vehicles and parts, while factory output aside from motor vehicles and parts edged down 0.1%.

The measure for utilities fell 1% while production at mines moved up 0.2% after eight straight monthly declines.

Total industrial production in May was 1.4% below its year-earlier level while the manufacturing component is just 0.1% lower.

Capacity utilization for the industrial sector decreased 0.4 of a percentage point in May to 74.9%, a rate that is 5.1 percentage points below its 1972–2015 average, indicating there is slack in the economy.

A deeper look into the numbers shows measures for nearly all major market groups declined in May. The output of consumer goods moved down 0.7%. The production of consumer durables fell 2.2% in May after increasing 1.1% in April. Business equipment posted a decline of 0.7%, an increasing worry for the Federal Reserve, according to Reuters.

This latest overall performance, especially in the manufacturing sector, follows what has been a weak year-to-date performance compared to 2015, as producers have had to deal with a strong U.S. dollar among other factors.

With no signs of these pressures easing, some believe the continued weakness in the industrial sector will continue to drag down the overall economy, which increased at a paltry 0.8% annual rate in the first quarter, though many are expecting it to improve to at least a 2% rate in the second quarter.

Business Inventory Jump Outweighed by Sales

This report follows one from the Commerce Department on Tuesday showing while business inventories in April increased 0.1% following a 0.3% gain the month before, business sales rose even more, 0.9%, its best performance in two months.

This pushed the business inventory-to-sales ratio down to 1.40 from 1.41 in March, the first decline since May 2015, although there still haven’t been two consecutive monthly declines since 2012. A year ago the gauge was at 1.37.

This drop, coupled with another on retail sales for May showing a broad-based increase, are “good signs for trucking,” said American Trucking Associations Chief Economist Bob Costello on Twitter.

High levels of business inventories have been blamed this year for contributing to weakness in manufacturing to a slowdown in truck freight.

Producer Prices Increase Again

Finally, a Labor Department report released Wednesday shows prices at the wholesale level increased for the second straight month in May.

The 0.4% uptick in the Producer Price Index from the month before was more than a consensus estimate by analysts and follows a 0.2% gain in April. Helping push the measure higher was a 2.8% increase in energy prices in May from the month before.

Despite the gains, the PPI is down 0.1% over the past 12 months, showing inflation is not a threat to the economy. Excluding volatile food and energy prices, the PPI is up 1.2% over the past year.

Comments

  1. 1. SLM [ June 16, 2016 @ 08:01AM ]

    Jan 20,2017. Obama has brought the hope he promised. I'm hoping we can hold on until he is out of the White House.

 

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