Declining demand coupled with cutbacks to inventory levels continue to severely depress U.S. factory sector activity. During February, industrial production fell 1.5% after the little-revised 1.9% drop during January. Last month's decline about matched Consensus expectations for a 1.3% decline.
· Year-to-year output fell 12.2%, the sharpest decline since early 1975. The drop owes to reduced U.S. demand, inventory cutbacks and recessions abroad. These forces have combined to lower overall U.S. production to a degree that roughly matches earlier, severe recessions. Moreover, the decline is just short of the record set following World War II.
· To make matters worse, the falloff has been picking up momentum. During the last three months, the rate of decline accelerated to 20.8% (AR). Factory sector output alone is off at a 22.9% annual rate during the last three months versus a full-year drop of 2.6%.
· The downward trend in the output of motor vehicles & parts took a breather last month and production rose 10.2%. Nevertheless, output fell at a 66.3% annual rate during the last three months. Outside of the auto sector, output also was hard hit. It fell 1.7% during February and at an 18.0% rate during the last three months. The downturn in the housing market continues to cause stress. Output of construction supplies fell 2.2% last month and at a 34.1% annual rate during the last three. Output of consumer goods overall fell 0.7% last month and at a 17.0% rate since November. Production of furniture fell at a 25.0% rate during the last three months while apparel output fell at a 24.8% rate. Production of business equipment continued lower last month with a 1.3% decline and it fell at an 11.5% since November.
· Pain has come to an area which previously was immune. Industrial production in the high-tech sector fell 3.4% last month and at a 32.1% rate during the last three. That follows a 16.0% increase during last year. Less high tech, overall industrial production fell 0.8% during February and the annual rate of change of -24.7% was the weakest since 1975.
· Outside of the auto and high tech sectors, total factory production fell 1.1% last month and the three-month annual rate of decline accelerated further to -19.1%.
· Excess capacity grew even further last month. Capacity utilization fell to 70.9%, the lowest level since 1982. Utilization in the factory sector dropped even harder to 67.4% from a peak near 80% back in 2007. The latest rate was a record low. Growth in the total productive capacity of the factory sector has slowed to 1.2% (y/y).
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