Industrial Production at Worst Levels Since Right After World War II

The economy already was getting bad in the first quarter due to the impacts of the coronavirus, but March’s reading on industrial production went deep into contraction. In fact, it was worse than most of the public has seen dating back to January and February of 1946, in the aftermath of World War II. These numbers are very recessionary, but it’s important to keep in mind that many of these industries did not start their much deeper plunges until March was already underway.

The Federal Reserve reported that industrial production fell by 5.4% in March of 2020 as the COVID-19 pandemic put major pressure on the U.S. economy and while many factories and plants were cutting production or being idled. The Wall Street Journal had published a consensus estimate of a 3.5% drop in March.

Manufacturing output was down by an even sharper 6.3%, and most of the major industries showed sharp declines as well. The largest decline was seen in motor vehicles and parts as car factories closed down. Utilities saw a drop of 3.9% in production, and mining saw a 2.0% decline.

According to the Fed data for March, there was a decrease of 18.9% for consumer durable goods, followed by a decline of 5.3% for consumer energy products and a drop of 0.9% for consumer non-energy nondurables. Leading the atrocious consumer durables was a drop of 27.2% in automotive products. The Fed also showed that business equipment production fell by 8.6% and that was held down by a 22.8% drop in transit equipment from both motor vehicles and civilian aircraft.

The index for construction supplies fell by 5.8% and the index for business supplies fell by 6.7% in March. The Fed further showed that the output of materials fell by some 4.3%, with an 8% drop durable goods and a decline of less than 3% for nondurable goods and energy. The report said:

Durable goods industries that recorded decreases of between 8 percent and 10 percent included fabricated metal products, aerospace and miscellaneous transportation equipment, furniture and related products, and miscellaneous manufacturing. The index for nondurables fell 3.2 percent, with substantial declines in many industries but smaller decreases of 2 percent or less in food, beverage, and tobacco products; paper; and chemicals. The output of other manufacturing (publishing and logging) fell 5.4 percent.

Capacity utilization for the industrial sector, the percentage of work that could be handled at maximum output, fell by 4.3 percentage points to 72.7% in March. This was 7.1% below its long-run average and went sharply in reverse of what had been better before the tariffs and the coronavirus news hit. The Fed report said:

Capacity utilization for manufacturing in March was 70.3 percent, 4.7 percentage points lower than in February and 7.9 percentage points below its long-run average. The operating rate for durable manufacturing dropped to 67.8 percent, about 9 percentage points below its long-run average, held down by decreases in every major industry group. Capacity utilization for nondurables fell 2.5 percentage points to 73.9 percent, about 6 percentage points below its long-run average. Utilization rates for printing and support, for textile and product mills, and for apparel and leather all recorded drops of nearly 10 percentage points or more.

Sadly, these numbers are only setting the stage for far worse reports for the rest of the month and until the business climate changes for the better.