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News Story
Updated: 05/16/2014 01:19:00AM

Industrial production unexpectedly falls in april

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Shobhana Chandra

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WASHINGTON (Bloomberg) — Industrial production unexpectedly declined in April, held back by a plunge in utilities as temperatures warmed and a broad-based decrease in manufacturing.

Output at factories, mines and utilities decreased 0.6 percent after a 0.9 percent gain the prior month that was larger than previously reported, a report from the Federal Reserve showed Thursday in Washington. The median forecast in a Bloomberg survey of 81 economists called for an unchanged reading. Manufacturing, which makes up 75 percent of total production, decreased 0.4 percent.

The disappointing result in April may signal a pause after the biggest back-to-back monthly gains in manufacturing since 2010, as factories rebounded from an unusually harsh winter. Deere is among companies projecting a pickup in demand and Thursday’s report also contrasts with recent figures, such as the New York Federal Reserve’s Empire State index, that show the economy is on track for faster economic growth this quarter.

“Manufacturing is back at a more sustainable level; it’ll do OK,” said Stephen Stanley, chief economist at Pierpont Securities in Stamford, Conn., who had forecast a 0.5 percent drop in industrial output. “I don’t see the decline as the start of a new downward trend. The gains in February and March exceeded underlying trends.”

Estimates for industrial production in the Bloomberg survey ranged from a drop of 0.6 percent to an increase of 0.5 percent. The prior month was previously reported as a gain of 0.7 percent.

Manufacturing accounts for about 12 percent of the economy.

The Institute for Supply Management’s factory index rose to 54.9 from the prior month’s 53.7, the Tempe, Ariz.-based group’s reported on May 1. Seventeen of 18 industries reported growth in April, the most in three years. Readings above 50 indicate expansion.

Thursday’s Fed report also showed that capacity utilization, which measures the amount of a plant that is in use, fell to 78.6 percent from 79.3 percent the prior month.

Utility output slumped 5.3 percent, the most since January 2006, as temperatures warmed following an unusually harsh winter. It followed a 0.6 percent gain the previous month.

Mining production, which includes oil drilling, increased 1.4 percent.

Carmakers were among the bright spots in Thursday’s report. The output of motor vehicles and parts increased 0.1 percent after a 0.4 percent advance a month earlier, Thursday’s report showed. Excluding autos and parts, industrial production fell 0.6 percent after a 0.9 percent gain in March.

Industry data indicate vehicle sales will remain a mainstay for factories. Cars and light trucks sold at a 16 million annualized pace in April after a 16.3 million rate in March, according to Ward’s Automotive Group. Those were still the best back-to-back months since September-October of 2007. GM beat estimates for April while Ford Motor Co. missed them.

“The economy appears to be on an improving trend for the second quarter and the rest of the year,” Emily Kolinski Morris, senior U.S. economist at Dearborn, Mich.-based Ford, said on a May 1 sales call. She cited advances in consumer confidence and employment as helping demand.

Moline, Ill.-based Deere, the largest agricultural-equipment maker, posted lower-than-expected sales in its fiscal second quarter through April. At the same time the company projected construction and forestry sales will climb 10 percent in the full year on a recovery in U.S. housing. Caterpillar Inc., the world’s largest maker of construction equipment, last month doubled its 2014 sales growth forecast for building equipment.

Machinery production dropped 1.6 percent and construction materials were unchanged, today’s report showed. Output of computers and electronics decreased 0.4. Consumer goods production declined 1.3 percent.

Retail sales held steady in April, advancing 0.1 percent after a 1.5 percent surge in the previous month that marked the biggest gain in four years, Commerce Department figures showed on May 13.

The economy, which grew at a 0.1 percent annualized rate from January through March, may expand at a 3.5 percent pace in the second quarter, according to the median forecast of economists surveyed by Bloomberg News from May 2 to May 7.


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