Source: Economics Group of Wells Fargo Bank, N.A.
Summary
Industrial production stalled in April amid a pullback in manufacturing output as the sector remains constrained by tighter credit conditions and elevated borrowing costs. Elevated uncertainty leads us to expect production will continue to be range-bound in the coming months.
Manufacturing Still Constrained and Will Remain Range-Bound
Industrial production came in flat in April, a touch softer than expected. The overall report continues to demonstrate more of the same for the industrial-side of the U.S. economy. Tighter credit conditions, elevated borrowing costs and macro uncertainty are constraining capital investment and manufacturing activity. Manufacturing had shown some signs of life in Q1 amid a pickup in orders and a move higher in the ISM manufacturing index, but unpredictability will continue to delay the sector’s revival.
Manufacturing output, which comprises the vast majority of the index, declined 0.3% in April on the heels of a downward revision to its decent gain in March. The outturn points to a sector of the economy that has continued to feel the weight of restrictive interest rates. Over the past year, industrial output is down 0.4% (chart).
As shown in the above chart, strong utility production helped keep total output from declining over the month. Like March, the weather was warmer than usual in April across much of the continental U.S., which led to a strong 2.8% gain in utilities. Meantime, mining output posted its second-straight monthly decline (-0.6%) as the number of active oil and gas rotary rigs dropped to its lowest level since 2022 in April. The softening rig count coincided with the WTI benchmark falling around 5% over the month, giving back some of its impressive run since the beginning of the year.