Industrial production rose by a stronger-than-expected 1.1% in April, with most components of the index showing gains. In particular, durable consumer goods turned in a good performance, while automotive products, in particular, increased 2.4% for the month. Production of business equipment rose 1.5%, offering hope that we may soon see acceleration in the lackluster pace of business investment. Capacity utilization moved to 79.2%, the high mark for this (so far disappointing) recovery.
While today’s reading is encouraging, we have to note that this progress follows the weak report for March; those declines we attributed, in part, to earlier, unseasonal weather and the distortions that created with the following “payback” when more normal temperatures returned (construction materials and utility output were heavily affected.) The latest data show that these weather-related effects may be over, and that production is returning to a healthier, more positive, long-term trend.
The weather also made for some complicated patterns in the construction market. Data on housing starts and permits for April, also released this morning, were mixed, with a 2.6% increase in starts and a 7% decline in permits; readings for both sets of data in March were revised upward. At best, home building remains checked. We see some stabilization, but hardly any momentum as we head into late spring and summer; if anything, the decline in permit requests suggests that construction will not accelerate soon. The composition of the data is also mixed. In April, single-family home starts increased 2.3 percent; starts for multi-family homes advanced 4.3 percent, but multi-family permits fell more than 20 percent. While the multifamily category shows higher volatility and accounts for a smaller share of overall construction activity, this has been the area where stronger gains have been posted in previous months, in-line with a trend away from home ownership and towards renting. April data appear to contradict this recent pattern. We’ll watch next month to better understand if this is a temporary blip, as we suspect, or a broader shift.
Bottom Line: As the spring progresses, we are leaving behind some weather-related distortions in the economy, so data are returning to normal trends; the economy continues to show signs of improvement, especially in the manufacturing sector, but it is still a long way to show any significant healing in housing, despite the recent stabilization at relatively low levels of activity. Today’s data are consistent with moderate economic growth.