Industrial production in the US declined by -0.5% in April, brought low by a major drop in factory output due to the ongoing reduced demand for autos and auto parts. The rate of growth was the slowest in two years, and the 2nd worst since the last recession.
Key Takeaways
- Industrial production dropped unexpectedly, coming in at -0.5% vs. the flat reading expected and the 0.2% reading seen the month before.
- The decline in production of motor vehicles and related parts is behind the reading.
- Manufacturing has been down over the past year with poor auto sales and a general economic slowdown impacting the industry.
The Federal Reserve released a report on Wednesday indicating that industrial output dropped -0.5% in April, undoing the slight increase seen in March and matching the -0.5% drop seen in February. The decline was led by a 2.6% drop in motor vehicles and parts, a measure which has dropped in three out of the last four months. Capacity utilization fell sharply to 77.9% from an upwardly revised 78.8%.
Production at US utilities also dropped sharply with a 3.5% decline as rising temperatures led to decreased demand for heating, while production at mines rose 1.6%. This sector also covers oil and gas drilling. Chemical products and consumer energy products both fell.
Manufacturing has struggled over the past year, reflecting weakness in auto sales and the global economy. Growth for April was the worst in two years.
The decline in industrial production over the last few months is the worst since 2016 and 2nd worst since the recession. End of the Trump bump?
— Robert Drach (@RBDrach) May 15, 2019
Market Reaction
Gold prices have seen little reaction to the news, continuing to trade near the $1,300 mark at $1299.38. The weak industrial production report offsets a stronger NY Fed manufacturing report released earlier in the day, and it’s likely that the market response is partially being influenced by geopolitical tensions.
A standoff between the US and Iran is ongoing, with the US navy sending support to the Persian Gulf following an attack on two Saudi oil tankers. The Trump administration is also considering sending 100,000 troops to complement the naval force. The stock market has been wobbly today following the news, strengthening the case for gold, and weaker than expected retail sales may also be a bullish factor.