as Automakers Boost Output

• Industrial production increased 1.1% in April, the fourth straight increase. Output was up in manufacturing, mining, and utilities.
• There was a second straight big increase in auto output as the automakers gradually resolve their supply chain problems.
• Goods inflation will slow through the rest of 2022.

Industrial production rose 1.1% in April from March, the fourth consecutive monthly increase. Production rose 0.9% in March (unrevised). Manufacturing output increased 0.8% over the month. Mining output rose 1.6%, on top of a 1.9% jump in March, as energy production is increasing in response to higher prices. Utilities output rose 2.4%.

Production of automotive parts rose 3.3% in April, after a huge 7.3% increase in March. Although parts shortages, particularly of computer chips, continue to hamper production, the automakers are gradually increasing output.

The capacity utilization rate increased to 79.0% in April from 78.2% in March. The manufacturing capacity utilization rate increased to 79.2% from 78.6%. The rising capacity utilization rate is good news, indicating that the industrial sector is resolving its supply chain issues; as a result, goods inflation in the US economy should slow throughout 2022.

The industrial side of the US has fully recovered from the pandemic and supply chain issues appear to be fading. Parts shortages are still a problem for the auto industry, but big increases in production in March and April suggest that they are dissipating. Energy production is rising as exploration and development are up in response to higher prices. The energy industry is much more disciplined now than in previous energy cycles, however, which means that output is increasing more gradually and prices will fall more slowly, but they will come down as production increases.

The rising capacity utilization rate provides further evidence that supply chain problems are abating; higher output will help slow inflation. In addition, slowing demand for consumer goods as the recovery proceeds and households switch their spending to services will also help reduce production bottlenecks and inflationary pressures.

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