Implications: The drop in industrial production in April was the largest in the 101-year history of the index, as the first full month of pandemic-related shutdowns caused a broad-based collapse in activity. Headline industrial production and its manufacturing subcomponent plunged 11.2% and 13.7%, respectively, the largest monthly declines for both series on record. Within manufacturing, auto production fell 71.7%. Meanwhile, non-auto manufacturing fell 10.3% in April as well, demonstrating the widespread nature of factory shutdowns. But it wasn't just the factory sector that was weak in April. Mining declined 6.1%, as extraction activity for oil, natural gas, and other minerals took a hit. After the front-month futures contract briefly went negative in mid-April, the price of WTI crude has since recovered. But it's still down roughly 55% since the beginning of January and below the break-even level for many US producers. As a result, we expect more weakness in this sector in the months ahead. The crude oil market got hit from both sides, as global disruptions from the Coronavirus hit demand, while Saudi Arabia and Russia boosted supply in a quest to wash out US competitors. Later this year, as the pandemic eases, prices should rebound, with mining activity recovering close behind. Note that given this year's weather patterns, we would normally have expected utility output to rise this April. Instead, it slipped 0.9%, likely due to less utility demand from offices and stores around the country. While today's report may leave a bad taste in your mouth, it's important to remember that the weakness was largely anticipated. High frequency data indicate that some forms of economic activity are already reviving, and we expect the overall level of output to bottom very soon, perhaps later this month. As more areas of the country begin to reopen, a return to growth is on the horizon by mid-year. In other recent manufacturing news, the Empire State Index, which measures factory sentiment in the New York region, rose to -48.5 in May from -78.2 in April. While this indicates a continued contraction, it also represents the largest one-month increase in the index since 2003, signaling improvement, though from a very low baseline. In other words, New York was getting worse, but at a slower rate. That may not seem like good news, but it's a necessary step before output starts improving again.
Click here for PDF version