Strong gains in industrial production in March

Industrial production rose 0.9 percent in March, following a similar 0.9 percent increase in February and 1.0 percent in January. The gains resulted in a very strong 12.1 percent annualized growth for the first three months of 2022, pushing total industrial production to a record high and clearly above the December 2019 level before the epidemic (see first chart). In the last one year, the total industrial production has increased by 5.5 percent.

Total industrial capacity utilization rose 0.7 points from 78.7 percent in February to 78.3 percent, the highest since January 2019 (see first chart). However, total power consumption remained below the long-term (1972 to 2021) average of 79.5 percent.

Manufacturing output – about 74 percent of total output – also grew 0.9 percent month-on-month (see first chart). Production output is at its highest level since July 2008 and is 2.9 percent above the December 2019 pre-epidemic level (see first chart). Compared to a year ago, production output increased by 4.9 percent.

Production usage rose 0.3 points to 78.7 percent, above the December 2019 level of 75.6 percent and slightly above the long-term average of 78.1 percent and the highest level since July 2007. However, it remained below the 1994-95 high of 84.7 percent (see first chart).

Mining output posted about 14 percent of total industrial production and a strong 1.7 percent increase last month (see the top of the second chart). In the last 12 months, mining output has increased by 7.0 percent.

Utility output, which is generally related to weather patterns and accounted for about 12 percent of total industrial production, increased 2.4 percent from natural gas to 0.4 percent (see chart at the top) but electricity rose 0.9 percent. Compared to a year ago, utility output increased by 7.5 percent.

Among the major components of industrial production, energy production (approximately 27 percent of total production) increased by 1.2 percent per month (see second chart below) with profits across four of the five components. Total energy production rose 8.2 percent from a year earlier but slightly below the December 2019 level (see third chart). Motor-vehicle and parts manufacturing (slightly less than 5 percent of total output), one of the industries most affected by lockdown and post-lockdown recovery, continued to be affected by the shortage of semiconductor chips, although output increased sharply in March. After a 4.6 percent decline in February and a 1.1 percent increase in January, motor vehicle and parts production jumped 7.8 percent month-on-month (see second chart below). Since a year ago, production of vehicles and parts has increased by 3.9 percent but is equal to the December 2019 level (see Chart 3).

Total vehicle congestion grew at a seasonally-consistent annual rate of 9.75 million, the highest since January 2021 but still well below the pre-epidemic average (see Chart 4). This includes 9.47 million light vehicles and 0.28 million heavy trucks. Among light vehicles, light trucks were 7.62 million and cars were 1.86 million.

The selected high-tech industry index rose 1.4 percent in March (see second chart below), and up 8.9 percent from a year earlier, and about 22 percent above December 2019 (see third chart). The high-tech industry accounts for only 1.9 percent of total industrial production.

Combined with all other industries (excluding energy, high technology and motor vehicles; total; about 67 per cent of total industrial production) rose 0.3 per cent in March (see second chart below). This critical segment is 4.5 percent above March 2021 and 4.0 percent above December 2019 (see Chart 3). Industrial production posted a strong, broad-based gain in March. Although many output systems have returned to pre-epidemic levels or above, ongoing deficits and labor supply constraints, rising costs and equipment shortages, and logistical and transportation constraints continue to limit manufacturers’ ability to meet significantly higher demand. The lockdown came after the recession. Moreover, continued upward pressure on prices, the ongoing wave of new COVID-19 lawsuits, geopolitical instability and global economic disruptions surrounding Russia’s aggression in Ukraine, and a new Fed tightening cycle maintain high risk and uncertainty for the economic outlook.

Robert Hughes

Bob Hughes

Robert Hughes joined AIER in 2013 for over 25 years researching economic and financial markets on Wall Street. Bob previously headed Brown Brothers Harriman’s Global Equity Strategy, where he developed an equity investment strategy that combines top-down macro analysis with bottom-up fundamentals.

Prior to BBH, Bob was a senior equity strategist at State Street Global Markets, a senior economic strategist at Prudential Equity Group, and a senior economist at Citicorp Investment Services and a financial markets analyst. Bob holds an MA in Economics from Fordham University and a BS in Business from Lehigh University.

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