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U.S. Industrial Production Rose in March Print E-mail
Daily Forex Fundamentals | Written by RBC Financial Group | Apr 16 13 14:11 GMT

U.S. Industrial Production Rose in March

  • Industrial production (IP) inched up 0.4% in March 2013 following an upwardly revised 1.1% (was 0.8%) gain in February but a downwardly revised 0.1% dip (was 0.1%) in January. Markets had expected a 0.2% gain.
  • The overall gain in production in March entirely reflected an outsized 5.3% surge in utilities output as colder than usual temperatures increased demand for home heating. The typically more stable manufacturing component inched down 0.1%, and mining output dipped 0.2%.
  • The capacity utilization rate inched up to 78.5% from 78.3% in February.

US IP rose 0.4% in March, which was above market expectations for a 0.2% gain. The gain, however, was entirely concentrated in an outsized 5.3% jump in the volatile utilities component and reflected cooler than normal weather that boosted demand for home heating. This implies that strength in utilities will be reversed going forward as temperatures return to normal. The more stable manufacturing component dipped 0.1%, albeit following an upwardly revised 0.9% (was 0.6%) gain in February. Motor vehicle production rose solidly for a second consecutive month by climbing 2.9% following a 2.0% February gain; however, this strength was offset by relatively broadly based weakness elsewhere. Mining output slipped 0.2% in March, which was broadly in line with the 0.3% dip in hours worked in the sector reported in the March payroll employment report.

The March capacity utilization rate rose to 78.5% from 78.3% in February.

The increase in industrial production in March largely reflected a surge in the volatile utilities component and abnormally cool weather that will likely be retraced going forward. Owing to earlier strength, the modest dip in the more stable manufacturing component still left that measure up an annualized 5.3% in the first quarter of 2013, which marked acceleration from the 2.3% gain in the fourth quarter of 2012. This remains consistent with our expectation that overall GDP growth accelerated to a 3% rate in the first quarter of 2013 from the negligible 0.4% increase in the fourth quarter of 2012; however, the slowing in March along with a weakening in a number of other indicators, including payroll employment growth and both the manufacturing and non-manufacturing Institute for Supply Management (ISM) indexes, in the month provided further evidence that the implementation of across the board cuts to government spending on March 1 weighed on business confidence and production. Our forecast assumes that the sizeable near-term fiscal contraction will result in GDP growth slowing to below a 2% rate in the second quarter of 2013 although we expect underlying growth in private demand remains strong enough that activity will reaccelerate once again in the second half of 2013.


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RBC Financial Group

The statements and statistics contained herein have been prepared by the Economics Department of RBC Financial Group based on information from sources considered to be reliable. We make no representation or warranty, express or implied, as to its accuracy or completeness. This report is for the information of investors and business persons and does not constitute an offer to sell or a solicitation to buy securities.

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