April 15, 2021

.Industrial production rose 1.4% in March after having fallen 2.6% in February.  The February drop was largely attributable to the bad weather in that month as a series of snow and ice storms paralyzed much of the country (think about Texas in particular)  This series will clearly continue to climb in April and May as the manufacturing sector shakes off its cold weather slump.  With the exception of the weather-related drop in February, production has risen steadily since reaching a low point in April of last year.  The nation’s production sector continues to recover.  However, as shown below, production is still 3.3% below where it was in February of last year — prior to the recession.  But it will continue to close the gap in the months ahead.

The reason the manufacturing sector will continue to climb in the months ahead is because orders have been flowing in, but firms have been unable to boost production enough to keep pace with demand as they encounter an ability to find qualified workers and they face an inability to get required production materials from their suppliers in a timely manner.  The ratio of orders to output components of the purchasing managers index is at a record high level.  Manufacturers need to step up the pace of production if they can.

Breaking industrial production down into its three major sub-components,  the Fed indicated that manufacturing production (which represents 75% of the index) rose 2.7% in March after having declined 3.7 in February.  This series is 2.5% below where it was in February of last year — prior to the recession..

High tech production was hit less sharply than most other sectors of the economy during the recession as business people turned to technology to help them cope with the fallout from the virus.  As a result high tech fell only slightly during the recession, and has now far surpassed its pre-recession high.  In the past year high tech production has risen 7.7%.  High tech spending helped the economy out of the recession.  It is also going to help businesses adapt to the new economy that is still evolving.

Mining (14%) output rose 5.7% in March after having declined  5.6% in February..  Mining has fallen 8.8% in the past year.

Utilities output fell 11.4% in March after having surged 9.2% in February as consumers turned up the thermostat during the bad weather.  Over the past year utility output has declined 0.2%.

Capacity utilization in the manufacturing sector rose 1.9% in March to 73.8% after having fallen 2.8% in February .It remains well below the 77.4% level that is generally regarded as effective full capacity utilization.

We expect GDP growth of 6.0% in Q1, 9.0% GDP growth in Q2, and 7.5% growth for 2021.

Stephen Slifer


Charleston, SC