U.S. Industrial Production Fell in April

• Industrial production fell 0.5% in April 2013 following downwardly revised gains of 0.3% (was 0.4%) and 0.9% (was 1.1%) in March and February, respectively. Market expectations were for a modest 0.2% decline.
• The capacity utilization rate fell to 77.8% from 78.3% in March.
• The greater than expected pullback in industrial production in April followed solid gains in the previous two months and brought the level of overall activity at the start of the second quarter of 2013 in line with the first-quarter 2013 average. Part of the weakness in April likely reflected business concerns about the effect of the government spending cuts that came into effect on March 1. Our expectation is that overall real GDP growth will see a moderation in the second quarter of 2013 relative to the first-quarter 2013 annualized gain of 2.5%. We anticipate that the economy will reaccelerate in the second half of 2013 as stronger underlying demand outweighs the drag from fiscal consolidation; however, the pace of growth is unlikely to be significant enough to bring the unemployment rate below the Fed’s 6.5% threshold, and we continue to expect that monetary conditions will be kept highly accommodative into 2015.

US industrial production fell 0.5% in April 2013 and missed market expectations for a modest 0.2% decline. The bulk of downward surprise in April came from the manufacturing sector where production contracted by 0.4% in the month against expectations for a modest increase. Motor vehicle and parts production led the declines and was down 1.3% despite early indications of that auto production increased for a third consecutive month in April. Utilities production fell 3.7% in the month partially to reverse the previous month’s outsized 6.4% increase as heating demand fell back to a more typical seasonal level as temperatures returned to normal after a cooler than usual March. The Mining sector provided a modest offset to the weakness seen in the other components, with output rebounding 0.9% in April following the 0.6% decline recorded in the previous month.

With the decline in overall production, the capacity utilization rate fell to 77.8% in April from 78.3% in March.

The greater than expected pullback in industrial production in April followed solid gains in the previous two months and brought the level of overall activity at the start of the second quarter of 2013 in line with the first-quarter 2013 average. Part of the weakness in April likely reflected business concerns about the effect of the government spending cuts that came into effect on March 1. Our expectation is that overall real GDP growth will see a moderation in the second quarter of 2013 relative to the first-quarter 2013 annualized gain of 2.5%. We anticipate that the economy will reaccelerate in the second half of 2013 as stronger underlying demand outweighs the drag from fiscal consolidation; however, the pace of growth is unlikely to be significant enough to bring the unemployment rate below the Fed’s 6.5% threshold, and we continue to expect that monetary conditions will be kept highly accommodative into 2015.

Information contained in this report has been prepared by the Economics Department of RBC Financial Group based on information obtained from sources considered to be reliable. While every effort has been made to ensure accuracy and completeness, RBC Financial Group makes no such representation or warranty, express or implied. This report is for information purposes only and does not constitute an offer to sell or a solicitation to buy securities.

To subscribe or visit go to:  http://www.riskcenter.com

http://riskcenter.com/articles/story/view_story?story=99915368