There are two economic reports worth focusing on this morning. First, total industrial production in America fell last month by 0.5 percent, according to new data from the Federal Reserve Board of Governors. That was worse than anticipated and the largest monthly decline in almost a year. The March print, though, was revised sharply higher, and some of the weakness in April was due to the weather, i.e. a temporary drop in utilities output caused by warmer than normal temperatures (decreased heating). However, there were also large declines in the important business equipment and manufacturing components in April, and capacity utilization deteriorated as well. Clearly the goods-producing sector remains a soft spot in the U.S. economy this year. The industry’s relatively high exposure to tariffs, FX volatility, and overall global economic growth has indeed exacerbated the recent weakness in factory activity, but an inventory overhang, automotive weakness, and safety issues encountered by Boeing’s 737 MAX planes have together provided an even bigger, and perhaps transitory, drag on output.
Elsewhere, advance estimates of retail and food services sales in April totaled $513.4 billion, according to a new report from the U.S. Census Bureau. That is a 0.2 percent decline from the prior month and much worse than the 0.2 percent gain analysts expected. However, the small pullback followed an upward-revised 1.7 percent jump in March, the largest increase since September 2017. Further, “control group” sales, which strip out more-volatile retail categories to provide a “cleaner gauge of underlying consumer demand,” were unchanged in April. Altogether it still seems possible that recent retail sales data have been a bit noisy due to tax refund timing and other potentially one-off factors. Subsequent reports will therefore be more telling about the true underlying trend in household consumption, the largest component of U.S. (and world) gross domestic product. Recent measures of wage growth and consumer confidence remain consistent with healthy spending gains, but the latest escalation in the trade war, uptick in gasoline prices, and data on Americans’ borrowing activity and personal saving suggest several headwinds exist.
Sources: Econoday, FRBG, U.S. DoC, Bloomberg, FRBSL
Post author: Charles Couch