Industrial production jumped 0.7% in April, more than twice market expectations. The rise was significant even after adjusting for a sharp downward revision to March data. The April release included benchmark revisions.
Gains were led by snapbacks in vehicle and machinery production. Only the primary metals and mining sectors posted major declines. The steel industry had been boosted by the boom in shale production and investment and has been one of the hardest hit by the subsequent bust. Extreme excess capacity, mostly in China, is also a problem for the steel industry; in response, American producers have launched several anti-dumping suits against China that will likely end with higher U.S.steel tariffs.
Bankruptcies in the mining sector accelerated in recent months, despite some firming in oil prices. We won’t reap the benefits of those oil price increases until later this summer, which means more bankruptcies in the interim.
Separately, utilities production surged during on weather extremes on both coasts. Parts of the West saw record highs in temperatures, while rain and cool weather dominated much of the Northeast. The surge in utility usage also boosted capacity utilization. Those gains, however, are likely transitory and not expected to exert much upward pressure on prices. A pending rise in steel tariffs is something we should watch more closely on the pricing front.
Bottom Line: Manufacturing activity appears to have finally bottomed after suffering widespread losses. This is welcome news for those who feared the oil bust and strong dollar might derail the overall expansion; they have not. We still have a ways to go, however, before the manufacturing sector is out of the woods.