US industrial output up 0.4% in March, in line with expectations; flat over past 12 months; ANZ: rise in vehicles, vehicle parts main driver of increase; US Treasury yields rise; rate-cut expectations soften; capacity utilisation rate up at 78.4%, still below long-term average.
The Federal Reserve’s industrial production (IP) index measures real output from manufacturing, mining, electricity and gas company facilities located in the United States. These sectors are thought to be sensitive to consumer demand and so some leading indicators of GDP use industrial production figures as a component. US production collapsed through March and April of 2020 before recovering the ground lost over the fifteen months to July 2021. However, production levels has largely stagnated since early 2022.
According to the Federal Reserve, US industrial production expanded by 0.4% on a seasonally adjusted basis in March. The increase was in line with expectations as well as February’s result after it was revised up from 0.1%. On an annual basis the contraction rate slowed from February’s revised figure of 0.3% to zero.
“A 3.1% rise in autos and auto parts drove the increase,” said ANZ senior economist Blair Chapman. “Excluding that sector, manufacturing production rose a modest 0.3%.”
US Treasury yields rose moderately on the day. By the close of business, the 2-year Treasury yield had gained 6bps to 4.98%, the 10-year yield had added 5bps to 4.66% while the 30-year yield finished 3bps higher at 4.76%.
In terms of US Fed policy, expectations of a lower federal funds rate in the next 12 months softened, although at least two 25bps cuts are still currently factored in. At the close of business, contracts implied the effective federal funds rate would average 5.32% in May, 1bp less than the current spot rate, 5.295% in June and 5.28% in July. However, April 2025 contracts implied 4.725%, 60bps less than the current rate.
The same report includes capacity utilisation figures which are generally accepted as an indicator of future investment expenditure and/or inflationary pressures. Capacity usage hit a high for the last business cycle in early 2019 before it began a downtrend which ended with April 2020’s multi-decade low of 64.2%. March’s reading increased by 0.2 percentage points to 78.4%, still somewhat below the long-term average of 80.1%.
While the US utilisation rate’s correlation with the US jobless rate is solid, it is not as high as the comparable correlation in Australia.
