Monday Economic Report: Manufacturing Production Remained Resilient, Rising 0.9% in March

AICC, through its membership in the Council of Manufacturing Associations, is pleased to present the "Monday Economic Report" from the NATIONAL ASSOCIATION OF MANUFACTURERS (NAM).

By Chad Moutray, Ph.D., CBE – April 18, 2022

The Weekly Toplines Manufacturing production rose 0.9% in March. These data continued to show the resilience of the sector, which reported strong growth despite significant challenges from supply chain bottlenecks, workforce shortages, soaring production costs and COVID-19. Indeed, manufacturing capacity utilization jumped to 78.7% in March, the highest reading since December 2007. Overall, manufacturing production has risen 3.9% post-pandemic. After declining in March at the fastest pace since May 2020, manufacturing activity in the New York Federal Reserve Bank’s district rebounded strongly in April. Orders and shipments bounced back, and the index for input prices soared to a new record rate, for a series dating to July 2001. Manufacturers in the region were less positive in their outlook for the next six months. Consumer prices jumped 1.2% in March, the strongest monthly gain since September 2005. Food and energy prices increased 1.0% and 11.0%, respectively, with gasoline costs soaring 18.3%. Nonetheless, excluding food and energy, core consumer prices rose 0.3%, the slowest monthly gain in six months.   The consumer price index has risen 8.6% over the past 12 months (seasonally adjusted), the fastest year-over-year pace since December 1981. At the same time, core inflation increased 6.4% year-over-year in March, remaining the biggest increase since August 1982. Likewise, producer prices for final demand goods and services soared 1.4% in March, and producer prices for final demand goods rose 2.3% in March, remaining the largest monthly gain on record for a series dating to November 2009. In March, food and energy costs jumped 2.4% and 5.7%, respectively, with 16.2% and 36.5% growth year-over-year. Over the past 12 months, producer prices for final demand goods and services jumped 11.2%, the largest increase on record. At the same time, core producer prices increased 7.0% year-over-year in March, just shy of the record 7.1% seen in December. The March data reflected very rapid growth in producer prices, exacerbated by the Russian invasion in Ukraine and building on inflationary pressures seen in prior months. On the other hand, the core inflation rate has averaged 6.9% over the past five months. While core price growth for raw materials remained highly elevated and near record paces, the data also suggested some plateauing, giving some hope for deceleration in the coming months. These data will put continued pressure on the Federal Reserve to tackle inflation. The Federal Open Market Committee is likely to increase the federal funds rate by 50 basis points at the upcoming May 3–4 meeting, building on the 25 basis-point hike seen at its March 15–16 meeting. Further increases are widely expected at other upcoming meetings, and the Federal Reserve will also start reducing its balance sheet, perhaps as soon as the next meeting. Meanwhile, retail sales grew 0.5% in March, slowing from 0.8% growth in February. With that said, gasoline station sales soared 8.9% in March, buoyed by higher prices. Excluding motor vehicles and parts and gasoline stations, retail sales increased 0.2% for the month. Retail spending has risen 6.9% year-over-year, consistent with the opening of the economy and with pent-up demand and excess savings. As such, these data provided mixed news on the consumer, with spending pulled lower by weaker sales at auto dealers and nonstore retailers. Yet, retail sales grew overall despite higher prices and consumer worries about inflation. In addition, the larger trend remained a positive one, with significant gains in spending seen over the past year. READ FULL REPORT