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US Industrial Output Falls, Consumer Sentiment at Seven Month Low

Posted by Joseph Trevisani on May 15, 2015 12:36:00 PM

American industrial output dropped for the fifth month in a row and manufacturing production was flat, as the second quarter began with little improvement on the tepid economic pace of the first three months of the year.

Industrial production slipped 0.3 percent in April led by declines in mining and utilities. This followed a revised 0.3 percent contraction in March that had initially been listed at -0.6 percent, according to the Federal Reserve today.  Economists in the Reuters poll had forecast a 0.1 percent gain for April. 

For the year to April industrial output grew just 1.93 percent, the second weakest performance in the last five years and a little more than half the 3.51 percent average. 

The disappointing report mirrored Wednesday's much weaker than expected -0.2 percent retails sales estimate for April.

Together they suggest that the essentially stagnant 0.2 percent annualized GDP expansion in the first quarter, itself likely to be revised to outright contraction, saw no improvement as the second quarter began, despite the widespread attribution the first quarter’s travails to the inhibitions of a harsh winter. 

Consumer sentiment in April also surprised analysts with the weakest reading since October, as rising gasoline prices seem to have been more relevant to consumers than the soaring stock market. 

The preliminary University of Michigan Consumer Sentiment index for May registered 88.6, far beneath the 95.9 forecast from the Bloomberg survey of economists and April’s identical score.  The 7.3 point drop was the biggest since December 2012, and the largest miss of expectations on record. This index has exhibited a larger monthly decline in only 20 months since the survey began in January 1978.

The index for current conditions sank to 99.8 in May from 107.0 the prior month and has now returned to its level of last fall, though it remains well ahead of the 87.3 post-recession average. 

A measure of consumers’ expectations for their economic situation in six months dropped to 81.5 in May from 88.8 in April. Here also the index has returned to last fall’s level while staying ahead of the post-recession average of 69.7.

Manufacturing output, a sub-set of industrial production, was unchanged in April, missing the 0.2 percent estimate, after a revised 0.3 percent gain in March. On the year the 2.3 percent gain, down from 2.7 percent in March was the lowest since February 2014 and below the 2.7 percent month average expansion since June 2009.

Mining production, a part of overall industrial production, fell 0.8 percent in April as oil and gas drilling plummeted 14.5 percent in the continuing playout from the decline in crude oil prices.  It was the fourth monthly decline in mining output in a row. Utilities production tumbled 1.3 percent, as the end of winter reduced demand for heating.

Industrial utilization, a gauge of the amount of the U.S. industrial plant that is in use, skidded to 78.2 percent in April from 78.6 percent in March, fading the 78.3 percent forecast. It was the lowest utilization score since January of last year. 

Americans expect the consumer price index to rise over the next year to 2.9 percent from its current 1.8 percent. Last month the expectation was 2.6 percent.

The recent 33 percent surge in gasoline prices since the January low of $2.03 per gallon may account for the pessimistic view of inflation. A gallon of regular gasoline sold nationwide for an average of $2.69 on Thursday.

In a separate report the Empire State Manufacturing Survey Index from the New York Fed rose slightly to 3.09 in May from -1.19 the previous month, a two year low. Analysts had predicted a reading of 5.00.  The sub-indexes for number of employees and prices (paid and recieved)  and future capital spending tumbled, while new orders rose. 

Joseph Trevisani

Chief Market Strategist

WorldWideMarkets Online Trading

Charts: Bloomberg

ip may 15

ip yoy may 15

mfg may 15

sentiment may 15

 

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