We got one of those economic reports Wednesday morning that seems, on the face of it, to be bad. Dig down a little deeper, and key data points are actually pretty good. But underlying it all, there are signs of more bad stuff to come.
Industrial Production, The Federal Reserve’s report for March, showed industrial activity in this country was down, by three-tenths of a percent, after an increase of eight-tenths of a percent the month before. That’s a pretty big pull-back.
The output of utilities, which power our factories and heat our homes and offices, fell sharply, by nearly 6%.
But the manufacturing component was actually up, by three-tenths of a percent, though even that was by a lot less than in February.
And mining, which is mainly U.S. oil and gas production, also slowed way down in March compared to the month before.
What’s it all telling us about the industrial sector and the larger economy?
Industrial production in decline is not a promising sign for economic growth.
Except, said analyst Jonathan Sakraida at CFRA Research, “There certainly is a bit of noise here. The decline is really driven by utilities, just due to a warmer period of weather.”
Manufacturing, a subset of industrial production, was actually positive, led by durable goods like autos and business equipment.
“We’re seeing this really being driven by tariff-led pre-buying activity — manufacturers trying to get ahead of any kind of punitive levies,” said Sakraida.
Aerospace manufacturing was up, driven by strong demand for commercial and military aircraft after quality problems and a strike hampered production, said Richard Aboulafia at AeroDynamic Advisory, which helps Boeing.
But, “Just when we were getting back on track, people are pulling back because of the uncertainty associated with tariffs,” said Aboulafia.
Here’s the central theme from economists today: Yeah, the manufacturing data from last month looks pretty good.
But, it’s already in the rearview mirror, said Oren Klachkin at Nationwide.
“Once that front-loading impact eventually fades, we’re not in for a particularly encouraging environment when it comes to industrial activity,” said Klachkin.
Meanwhile, the burgeoning trade war poses a rising risk to major U.S. exporters, said CFRA’s Jonathan Sakraida.
“Think about heavy machinery coming from companies like Caterpillar; Deere & Co. as far as large-scale harvesters; also a lot of components that go into commercial aviation,” said Sakraida.
Production of all that could slow, said Sakraida, if European and Asian countries escalate retaliatory tariffs, or just stop buying American.
