The latest economic update of the manufacturing sector shows growth slowing from a relatively strong pace just a few months ago. In March, manufacturing production fell by 0.6 percent. It rebounded in April, growing by 0.7 percent, but declined again in May when it fell by 0.4 percent. In the fourth quarter of 2011, manufacturing production grew by an annual rate of 5.6 percent. In the first quarter of 2012, the production grew by an annualized rate of 9.8 percent. Given that real GDP grew by just 1.9 percent in the first quarter of 2012, the strong growth of manufacturing activity in the first quarter could not be sustained. Manufacturing capacity utilization was 77.6 percent in May 2012—just 8 tenths of a percentage point off the December 2007 pre-recession level. Capacity utilization is currently less than one percentage point below its long-term average.

In the periods ending in both March and April, exports grew at an 11 percent annual rate compared to imports, which grew by 11.8 percent and 9.6 percent respectively. The growth of exports in March and April represents a definite improvement from the period December 2011 and January 2012 when export growth was negative and in February 2012 when the annualized rate of growth was just 1 percent.

The manufacturing sector has added 495,000 net new jobs since January 2010. The labor market recovery continued in April and May, but at a much slower pace than in the previous four months. Manufacturing added 152,000 net new jobs from December 2011 through March 2012. In April, however, manufacturing added just 9 thousand jobs and in May just 12 thousand jobs were added. The unemployment rate in manufacturing has trended down since January 2010, but it ticked up from 6.9 percent in April to 7.1 percent in May.

In the three months ending in April 2012, nondefense capital goods orders excluding aircraft was up 2 percent from April 2011. Producer prices for manufacturing industries fell 0.6 percent in May and were up just 0.9 percent from May 2011. The drop in May represents a sharp drop in the overall price index for the manufacturing sector. The drop was led by a 3.9 percent decrease in petroleum and coal prices between April and May, a sharp reversal of the trend in oil prices during the first quarter of 2012.

Don Norman, Senior Economist