U.S. Industrial Production Rises U.S. industrial production rose in March, moving beyond a lackluster winter and showing potential to gain strength in the coming months.
Industrial production, which measures the output of U.S. manufacturers, mines and electric and gas utilities, increased a seasonally adjusted 0.7% in March from the prior month, the Federal Reserve said Wednesday. Capacity utilization, a gauge of slack across industries, rose 0.4 percentage point to a 79.2% rate.
Manufacturing output—the largest component of industrial production—rose 0.5% in March, following a 1.4% gain the month before. While manufacturing is only a fraction of domestic economic activity, many economists view it as a good indicator of future demand.
For the first quarter this year, industrial production moved up at an annual rate of 4.4%, just slightly slower than the prior three months, the Fed said.
The Fed revised February’s overall reading up to 1.2% from 0.6% due to stronger gains for durable goods manufacturing and for mining.
From Haver Analytics, with chart above)
The capacity utilization rate rose to 79.2% last month from a downwardly revised 78.1%. That remained below the 80.5% high averaged in 2007. In the factory sector, the capacity utilization rate improved to 76.7% and remained below the 78.6% level before the recession. Total industry capacity rose a roughly stable 2.2% y/y while factory sector capacity increased 2.0%.
Yellen warns inflation may lag recovery Remarks raise possibility of easy monetary policy for longer
Even a recovering US economy may not pull inflation back up towards the Federal Reserve’s 2 per cent target, Janet Yellen has said, in remarks that raise the possibility of easy monetary policy for longer than currently expected.
In a speech to the Economic Club of New York on Wednesday, the chairwoman of the Fed said that high levels of unemployment had put less downward pressure on inflation than expected, so higher employment might not pull prices up again.
“We anticipate that, as labour market slack diminishes, it will exert less of a drag on inflation,” said Ms Yellen. “However, during the recovery, very high levels of slack have seemingly not generated strong downward pressure on inflation.” (…)
Ms Yellen said she still thought there was a lot of spare capacity, or slack, in the labour market. She noted the unemployment rate, which at 6.7 per cent is still around 1 percentage point above the Fed’s view of full employment; the large share of the workforce with part-time jobs who would prefer full-time work; and the high proportion of long-term unemployment.
She also weighed into the contentious argument about whether people who have dropped out of the labour force will come back.
“Although economists differ over what share of those currently outside the labour market might join or rejoin the labour force in a stronger economy, my own view is that some portion of the decline in participation likely represents labour market slack,” she said.
Ms Yellen noted that the recovery had continued from 2010 to 2012, despite shocks from the eurozone and fiscal tightening in the US, but only because the Fed was willing to provide extra stimulus via asset purchases. She said that was still the case. “[The Federal Open Market Committee] stands ready to adjust the pace of purchases as warranted should the outlook change materially.”
She struck an upbeat tone on the economy, but said there was still further to go.
“It is a sign of how far the economy has come that a return to full employment is, for the first time since the crisis, in the medium-term outlooks of many forecasters,” she said.
“It is a reminder of how far we have to go, however, that this long-awaited outcome is projected to be more than two years away.”
Two other important things she said:
In answer to a question posed after her speech, she added the Fed’s focus should be on lifting inflation to the 2% goal, not holding it down.
(…) the FOMC is well aware that inflation could also threaten to rise substantially above 2 percent. At present, I rate the chances of this happening as significantly below the chances of inflation persisting below 2 percent…
She emphasized that slack in labor markets is holding down wages. “Wage gains continue to proceed at a historically slow pace in this recovery, with few signs of a broad-based acceleration,” she said.
TRANSPORTATION COSTS SURGE
Truckload linehaul rates spiked in March, with the Cass Truckload Linehaul Index surpassing the 120 mark, showing a 6.0% year-over-year increase – the largest in 35 months – and setting a new high. From February, linehaul rates rose 3.7%, displaying an above-normal sequential increase for the fourth straight month. Demand for freight transportation continues to improve while capacity shrinks as carriers continue to exit the marketplace.
The cost of intermodal shipping also continues to rise, with March costs reflecting a 1.8% upsurge over the same month last year and a 2.5% increase from February. Like our truckload index, our intermodal index has also reached a new peak. (Cass)
The chart from Doug Short strongly suggests that we are near the cyclical low:
Big Banks Ramp Up Business Lending Banks are boosting their lending to businesses, providing fuel for companies to increase spending on workers and equipment as the economy improves.
Earnings results from the six largest U.S. commercial banks by assets, which include J.P. Morgan Chase JPM +0.84% & Co., CitigroupInc., C -0.27% Bank of America Corp.BAC -1.59% and Wells Fargo & Co., show a 8.3% increase in commercial loans outstanding in the first quarter from the same period a year earlier. (…)
Andrew Cecere, chief financial officer ofU.S. Bancorp, USB -1.32% the fifth-largest U.S. lender by assets, said in an interview Wednesday the bank has seen increased demand for commercial loans from small businesses to midsize companies and large corporations. The Minneapolis bank posted a 9.7% increase in commercial loans outstanding in the quarter, to $113.8 billion, helping to drive a rise in first-quarter net income. (…)
Banks, meanwhile, are making it easier to borrow. Average rates on new fixed-rate 10-year commercial loans dropped to 3.89% in March from 4.51% in January, according to banking-software and data company Automated Financial Systems Inc.
A January survey of senior bank-loan officers by the Federal Reserve found that 14% of banks had relaxed their standards for commercial and industrial loans to borrowers of all sizes in the fourth quarter. No loan officers reported tightening their standards. (…)
Other big banks also reported stronger demand for loans from businesses. For example, Wells Fargo, the fourth-biggest U.S. lender, posted a 5.9% increase in commercial loans outstanding in the quarter to $381.28 billion. The increase was “pretty broad-based,” said Perry Pelos, Wells Fargo’s head of commercial banking, in an interview Wednesday. (…)
Some banks reported that businesses tapped their credit lines to a greater extent in the first quarter, indicating they are more confident about their debt situations or are preparing to spend more on their businesses. (…)