First-quarter data on U.S. manufacturing showed increased production, despite a slight dip reported in March.
Although manufacturing accounts for just over a tenth of the U.S. economy, its rate of production has implications for many industries. Typically, less output coincides with a decrease in demand since businesses struggling to move product will make fewer factory orders. But since the COVID pandemic, it has instead become a sign of weak supply chains as demand has remained fairly consistent throughout the last three years.
Overall, manufacturing improved during the first quarter, changing course in January after declining throughout 2022. The Federal Reserve’s Q4 report indicated factory output was decreasing at an annual rate of 3.1%, but Q1 data suggests it is now growing at a 0.3% pace. Ultimately, this allowed total industrial production to be nearly identical between both periods.
However, while production improved enough between January and February to allow for a higher quarterly rate, the positive trend ended in March. Last month’s manufacturing output fell 0.5% from February and 1.1% from March of 2022. Average capacity utilization, a measure of a facility’s annual output compared to its maximum capabilities, also fell 0.5% to 78.1%, less than one percent under the 50-year norm. While the change is slight, it underscores the post-COVID economy’s instability.
Despite last month’s decline, first-quarter manufacturing output suggests that American industry is recovering faster than expected from its pandemic slump. While it is difficult to say what the remainder of the year has in store, the sector’s unanticipated vitality is nevertheless encouraging.