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Industry output rises for the third straight month, helping to sustain freight demand

Output from the nation’s industrial sector climbed for the third consecutive month, as broad gains across industries helped compensate for a lull in auto production

The Federal Reserve reported that total industrial production grew a healthy 0.7% in April from March’s levels. This marks the third straight monthly gain in total production and keeps year-over-year growth in output at a healthy 3.5%. Results from previous months were revised downward however, showing that growth during the 1st quarter was slower than initially thought.

Unlike last month, where a surge in utility production boosted the overall number, this month’s results were fairly broad-based, with most major industries reporting gains. Manufacturing industrial production, which excludes mining and utilities from the total, rose 0.5% although tough comparisons to last year pushed year-over year growth down to 1.7%.

 Total industrial production growth remains solid in the 2nd quarter
Total industrial production growth remains solid in the 2nd quarter

Growth during the month came despite a 1.3% monthly decline in auto production, which cooled after two consecutive month of strong growth. The weakness in the auto production falls in line with other reports from the sector which showed softer auto sales during the month. This was offset by strength in nondurable goods like clothing and chemical production, which each saw monthly gains above 1% in April.  On the durable side, there were also several industries that saw strong growth during the month, led by big advances in machinery and computer & electronics production.

These results help further reinforce the notion that freight demand will remain solid in the 2nd quarter. Domestic manufacturing activity helps to underpin transportation demand, as goods that are produced here are carried to distribution centers, warehouses, and ports on the way to their final destination Healthy retail spending, combined with business investment demand and solid export growth should keep US manufacturers busy throughout the 2nd quarter.

Behind the Numbers:

The production numbers from April came in a bit better than expected, but the revisions to previous data showed that the 1st quarter wasn’t nearly as robust as originally thought. Quarterly growth in total production was basically halved by the revision, putting growth roughly in line with the overall GDP results from the 1st quarter.

Like GDP (and retail sales for that matter), the expectations are that industrial output will gain some momentum during the 2nd quarter. The April results fall in line with this idea, and the broad-based nature of the growth during the month suggests that the manufacturing sector is hitting on (almost) all cylinders. So far, there has been fairly little evidence that tariffs and the prospects of a trade war have caused any significant blows to the overall manufacturing sector, and signs continue to point to solid growth going forward.

Ibrahiim Bayaan is FreightWaves’ Chief Economist. He writes regularly on all aspects of the economy and provides context with original research and analytics on freight market trends. Never miss his commentary by subscribing.