Industrial production rose by a paltry 0.1% in February, restrained by a second consecutive decline in manufacturing activity
The Federal Reserve released results from the industrial sector this morning, showing that total industrial production rose by 0.1 percent in February from January’s levels. This fell short of consensus expectations of a 0.4 percent gain and comes on the heels of a 0.4 percent decline in the previous month that was smaller than initially reported. Year-over-year growth slipped to 3.5 percent in February, marking the slowest pace of yearly growth since June of last year.
Unseasonably cold winter weather led to a big gain in utilities production during the month, which rose 3.7 percent from January’s levels and helped drive the slight overall gain in total industrial production. Manufacturing production, which excludes mining and utilities from the total, fell 0.4 percent during the month as year-over-year growth tumbled to 1.0 percent.
Like the previous month, there was plenty of weakness to go around in the manufacturing sector in February. Both durable and nondurable manufacturing production declined during the month, led by sizeable drops in petroleum products, machinery and non-metallic mineral products. Auto production also failed to rebound in February after January’s 7.6 percent decline.
Behind the Numbers:
February’s industrial production data further reinforces the view that the economy is losing considerable momentum during the first quarter. The boost in utilities production that led to a modest gain in overall industrial output is likely just temporary; now that temperatures have returned to more normal levels, this gain in utilities will likely be reversed when March data is released next month. The 3.5 percent growth rate is still strong by historical standards, but that should continue to ease in upcoming months.
Manufacturing activity is decelerating rapidly in the economy, however. Survey data from the Institute of Supply Management and regional Federal Reserve banks have been signaling a softening manufacturing environment over the past few months, which has been mirrored in the the actual manufacturing production data.
The manufacturing sector continues to face real headwinds from the slowdown in global growth and a general weakening of investment demand in the U.S. economy. On top of that, the first quarter also had additional disruptions from the government shutdown, the polar vortex across the Midwest, and continued policy uncertainty over trade. If nothing else, these factors likely reduced business investment demand further in the first quarter, curbing manufacturing activity in the process.
The good news is that some of these disruptions are now in the rear view, and manufacturing activity should begin to grow again in upcoming months. However, growth is likely to be well below the pace seen in 2018, as the longer-term underlying headwinds continue to weigh on U.S. manufacturing.
Ibrahiim Bayaan is FreightWaves’ Chief Economist. He writes regularly on all aspects of the economy and provides context with original research and analytics on freight market trends. Never miss his commentary by subscribing.