Yesterday's strong industrial production report from the Federal Reserve was welcomed by the National Association of Manufacturers (NAM).
The Fed reported that industrial production grew by a strong 0.8% in April. “That marks the third acceleration in as many months,” said NAM Chief Economist David Huether. “Also, the upturn last month was broad-based. Manufacturing production, which has been up 10 of the past 12 months, increased by 0.7% – the fastest rise since January.”
While most manufacturing sectors posted gains in April, manufacturers of machinery showed the biggest gain, with production surging by 2.8% – the fastest monthly rise in two years. One of the few sectors that posted a decline in production was wood products, where output fell by 0.7% in April – the fifth consecutive monthly drop.
“While today’s report shows that the economic expansion remains on track, it nonetheless indicates that composition of growth is moving away from housing and consumer spending and in favor of business investment,” Huether said. “While this is encouraging for some sectors of manufacturing such as machinery, fabricated metals, electrical equipment and computer products, manufacturers of consumer products and construction materials will likely see demand slow down in coming months.”
Supporting this prospect, the Commerce Department reported yesterday that housing starts and building permits both fell for a third consecutive month in April. “The last time this happened was in the first quarter of 1995,” Huether said. “With the housing market cooling, and business beset by record high energy prices, it is time for the Federal Reserve take a break from its interest rate tightening campaign. Further increases in interest rates will increase the cost of capital, especially for small manufacturers, at a time when our economy will be depending on continued business investment for solid growth in the upcoming quarters.”