U.S. Industrial Production Report Paints Bleak Picture

Industrial production dropped 0.7% in April, much weaker than market forecasts calling for a 0.3% decline. Industrial production growth was downwardly revised to 0.2% in March (previous: 0.3%). The capacity utilization rate dropped to 79.7% from 80.4% in March.

Manufacturing production declined 0.8% in April, affected by a massive 8.2% drop in motor vehicles and parts production as activity was restrained by a strike in the sector. Production of durable goods dropped 1.4% and non-durables declined 0.1%. Mining production fell 0.8%, partially reversing March's 1% gain. Utilities production increased 0.3%.

Business equipment production, a correlate of capital spending, fell 1.1% after increasing 0.7% in March. This is in line with our view calling for equipment and software spending to contract in the second quarter.

April's industrial production report was particularly bleak because of the precipitous decline in manufacturing and mining output. In fact, April's data put industrial production an annualized 3.3% below its first-quarter average, consistent with very subdued overall economic activity. It is important to note that industry data have suggested an increase in motor vehicle assemblies for May, but this would likely be contingent on an end to the strike in the sector.

RBC Financial Group
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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.