In April, there was a significant upswing in production at American factories, primarily due to a rise in output at motor vehicle plants. However, the manufacturing sector still faces limitations due to elevated interest rates.
According to the Federal Reserve, manufacturing output experienced a 1.0% increase last month. However, the data for March was revised downward, revealing a decline of 0.8% in factory production instead of the previously reported 0.5%.
In a Reuters poll, economists predicted a modest 0.1% increase in production. However, the actual data showed a decline of 0.9% in output compared to the previous year during the month of April.
Following a 1.9% decline in March, motor vehicle production experienced a remarkable surge of 9.3% last month. In terms of overall manufacturing output, excluding motor vehicles, there was a positive rebound of 0.4% in April, countering the 0.7% drop observed in March.
The manufacturing sector, representing 11.3% of the U.S. economy, has been hindered by increased borrowing expenses, which are negatively impacting the demand for credit-based purchases of goods. Additionally, there is a noticeable shift in consumer spending from goods to services.
As demand slows down, businesses are accumulating surplus inventory, which diminishes their motivation to request additional orders from factories. Moreover, there is additional pressure resulting from banks tightening their lending criteria, potentially causing limited access to credit for small- and medium-sized businesses, as well as consumers.
For six consecutive months, the Institute for Supply Management has reported a contraction in national manufacturing activity based on their measurement.
In April, there was a notable increase in durable manufacturing output, which rose by 1.4%. Similarly, output of nondurable goods experienced a moderate advancement of 0.6%. Mining output, particularly driven by oil and gas extraction, rebounded with a 0.6% growth following a 1.3% slump in March. However, utilities production took a significant dip of 3.1% after a substantial 8.4% increase in the previous month. The decline in utilities production was primarily attributed to a decrease in the production of electric and natural gas utilities during April.
The significant growth in manufacturing and mining sectors managed to compensate for the decline in utilities, resulting in a 0.5% overall increase in industrial production during April. In March, industrial output remained unchanged. The capacity utilization rate for the industrial sector, indicating the extent to which businesses are utilizing their resources, improved from 79.4% in March to 79.7% in April, aligning with the average rate recorded between 1972 and 2022. Specifically for the manufacturing sector, capacity use rose by 0.7 percentage points to reach 78.3% in April, surpassing its long-term average by 0.1 percentage point.