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THE PRODUCERS: INDUSTRIAL OUTPUT, EMPIRE STATE

Investors capped a week of mixed economic data with two reports suggesting rumors that clouds are appearing on the U.S. industrial landscape are exaggerated.

A report from the Federal Reserve shows industrial output USIP=ECI surprised to the upside by rising 0.7% last month, marking a decisive rebound from March's 0.3% decline.

Estimates called for a less impressive 0.3% increase.

Manufacturing output rose by 0.6%, triple the rate analysts expected.

Beneath the surface, the attention-grabbers include a 3.7% increase in motor vehicles/parts and a 1.9% increase in utilities output. Business equipment rose 1.5% and high-tech output expanded by 1.0%.

Excluding autos/parts, total output was 0.5%. Mining and non-durable goods were the only detractors, both slipping by 0.1%.

Worries over looming supply chain disruptions appear to be at least partly responsible for the stronger-than-anticipated data.

"Manufacturing output already was picking up at the start of this year, helped by solid growth in output of computers and electronics due to the AI boom, and the fading of the tariff-related uncertainty," writes Oliver Allen, senior U.S. economist at Pantheon Macroeconomics. "But fears around the potential disruption to supply chains due to the war in the Middle East now seem to be providing a substantial additional tailwind, as companies pull forward orders and build precautionary inventories."

Capacity utilization USCAPU=ECI, a measure of economic slack, tightened to 76.1% from 75.7%, stronger than the 75.8% consensus and reaching its highest percentage since last July.

On a regional level, factory activity in New York State has unexpectedly put its pedal to the metal this month.

The New York Fed's Empire State index USEMPM=ECI jolted upward, gaining 8.6 points to print at 19.6, its highest reading since November 2024.

Analysts expected a slight deceleration to a still-expansive 7.5, down from 11.0 in April.

An Empire State reading north of zero indicates monthly expansion; a negative print signifies contraction.

Below the surface, new orders and shipments jumped for the second month in a row. But delivery times "lengthened considerably," according to the press release, and supply availability deteriorated a bit. Employment improved and the near-term outlook grew a bit sunnier.

However, input and selling prices - inflation predictors - "picked up sharply."

"New orders and shipments rose strongly, and employment continued to increase," says Richard Deitz, economic research advisor at the New York Fed. "However, the pace of price increases surged while delivery times and supply availability worsened."

Next Thursday, the Philadelphia Fed will release its Philly Fed manufacturing report, which should help flesh out the picture of the current month's Atlantic region factory activity.

(Stephen Culp)

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