The latest gauge on the manufacturing sector showed that production contracted 0.5 percent in April, the first month-to-month decline since June 2009. However, total industrial production, which includes mining and utilities in addition to manufacturing, was unchanged during the month.
Eric Green, chief market economist at TD Securities Inc. in New York, told Bloomberg that "Job demand is real, and we're going to emerge past this soft patch." Another report that came out Friday showed fewer Americans than forecast filed first-time claims for unemployment benefits last week.
ATA's Economic Group notes that most of April's weakness in the manufacturing sector was due to an 8.9 percent plunge in auto production. The large drop in auto production was attributable to a shortage of parts from Japan in the wake of the earthquake there. Total durable goods production, which includes products with a useable life of at least three years, was down 1 percent in April, while nondurable goods output was up 0.1 percent.
In the bigger picture, compared with April 2010, total manufacturing was up 5 percent. Nearly all sectors saw year-over-year increases with only paper production (-1 percent) and petroleum and coal products (-2.7 percent) down from a year ago. Conversely, machinery output jumped more than 13 percent from April 2010.
Some economists point to "normalization," now that manufacturers have rebuilt much of the inventories they let draw down significantly during the recession, as another reason for the softening in manufacturing.
The Bureau of Transportation Statistics suggested that disruptions related to the disaster in Japan may last for quite some time. Damaged equipment, loss of power and disrupted intermodal infrastructure in Japan reduced shipping capacity and interfered with international trade links.
On March 21, General Motors announced that a shortage of electronic parts arriving from Japan forced the temporary closing of pickup truck manufacturing and assembly plants in New York and Louisiana. Other North America based automobile manufacturers, including Toyota, Nissan, and Honda, also suffered supply disruptions and shortages of essential automotive parts, such as electronics and paint pigments, from Japan.
On the other hand, earlier this month, GM announced it will invest $2 billion in plants in eight U.S. states as it works to boost production and market share. Bloomberg reports that GM's investment during the next year will support more than 28,000 U.S. jobs when including indirect employment at suppliers and work created from those employees spending their earnings, according to the Center for Automotive Research.
The earthquake also will affect worldwide demand for oil. The loss of Fukushima Dai-ichi nuclear plants, Japanese oil consumption is expected to increase by 238,000 million barrels per day as a substitution for power.
U.S. fuel demand climbed in April as the economy continued to grow. According to the American Petroleum Instritute, total deliveries of petroleum products, a measure of demand, climbed 5.2 percent to 19.9 million barrels a day last month from a year earlier. Diesel consumption alone climbed 26 percent to average 3.42 million barrels a day.
Housing was also down significantly in April. The Census Bureau reported that new housing starts plunged 10.6 percent in April to 523,000 units. While the housing market remains in the doldrums, the April data was particularly weak due to bad spring weather that delayed some starts. Single-family housing starts decreased 5.1 percent in April to the lowest level since February 2011. Compared with April 2010, starts were off nearly 24 percent. Single-family starts contracted 30.4 percent during the same period.
More broadly, the index of leading economic indicators, which is designed to forecast U.S. economic activity three to six months in the future, fell for the first time since June 2010. Specifically, the LEI decreased 0.3 percent in April. From June of last year through March of this year, the LEI had increased over 5 percent. Compared with April 2010, the LEI was up 4.1 percent.
