Industrial production fell 1.5 percent in March after a similar decrease in February. For the first quarter as a whole, output dropped at an annual rate of 20.0 percent, the largest quarterly decrease of the current contraction. At 97.4 percent of its 2002 average, output in March fell to its lowest level since December 1998 and was nearly 13 percent below its year-earlier level. Production in manufacturing moved down 1.7 percent in March and has registered five consecutive quarterly decreases. Broad-based declines in production continued; one exception was the output of motor vehicles and parts, which advanced slightly in March but remained well below its year-earlier level. Outside of manufacturing, the output of mines fell 3.2 percent in March, as oil and gas well drilling continued to drop. After a relatively mild February, a return to more seasonal temperatures pushed up the output of utilities. The capacity utilization rate for total industry fell further to 69.3 percent, a historical low for this series, which begins in 1967.
First quarter production dropped at a 20% annual rate. There is no way to spin that as good news. That is terrible news. In addition, production has dropped 13% below the same level as last year -- another terrible statistic. Finally, there have been 5 monthly drops in production. That -- again -- is terrible.
Now -- consider this chart of overall industrial production. Click on a larger image:
Above is a long-term chart of overall industrial production with a logarithmic scale. Notice the latest contraction that started in December 2007 has wiped out any production gain made during the latest expansion. That has not happened since the great depression. Here's a closer look at the last 40 years or so:
Capacity utilization is at its lowest level in over 40 years. Let's assume we get of this recession by the end of the year. Do you think companies that are at 40+ year lows in capacity utilization are going to be purchasing new equipment? Neither do I. This does not bode well for equipment and software investment, which is about 8.4% of US chained GDP. This means we can't count on that to pull us out of the recession in any meaningful way.
Consider these charts from the report. Notice that construction and durable goods are dropping like stones.
And all of this is having a negative impact on manufacturing stocks: