FED RELEASES MARCH INDUSTRIAL PRODUCTION DATAPOST-EASTER RETAIL SALES SLOW
Today the Federal Reserve released its report on Industrial Production and Capacity Utilization for March.
The Fed's Index of Industrial Production measures the output of the nation's factories, utilities, mines, and oil and gas wells. Over the years, the Index has proven to be a reliable measure of the current state of the overall economy. It is one of the four indicators that the Department of Commerce uses in generating its monthly Composite Index of Coincident Economic Indicators.
Industrial production declined 0.5 percent in March after a revised gain of 1.3 percent in February. The General Motors strike made a major contribution to the figure for March. Excluding the decrease in motor vehicle and parts output due to the strike, industrial production would have risen by 0.3 percent.
Despite the effects of the strike, overall industrial production grew at an annual rate of 2.7 percent in the first quarter, up from 0.6 percent in the final quarter of 1995. The quarterly pickup was largely attributable to the return to work of striking Boeing employees.
These shorter-term phenomena tend to average out if we view the change in industrial production over a longer period of time, say a year. In March, the Index was 1.3 percent higher than it was in March 1995. This compares with an average annual growth rate of 4.9 percent from the end of the 1990-91 recession to February 1995.
Today, along with the production data, the Fed also released its March report on capacity utilization. Capacity utilization measures the percentage of the nation's productive capacity that was employed during the month. Between February and March, capacity utilization decreased from a revised 83.2 to 82.5. This indicator peaked at 85.5 in January 1995, and since then has only risen twice. Thus, the trend in capacity utilization continues to be downward.
History has shown that capacity utilization and the unemployment rate are inversely related to one another. When one falls the other one rises, and vice-versa. So, the downward tendency in the direction of the capacity utilization indicator may be foretelling a coming rise in the unemployment rate.
In other news, Mitsubishi Bank/Schroder-Wertheim announced today that the retail stores in their survey sample suffered a 2.3 percent decline in sales during the week ending April 13. This followed a surge in sales of 1.7 percent during the preceding week, the week before Easter.
Byline: Lafferty (MF Merlin)