We’re not out of the woods yet, but the latest data on manufacturing are signaling that the pace of the recession is slowing. Industrial production in April fell 0.5%, the smallest decrease since October.
Manufacturers have been extraordinarily swift in cutting production and have exacerbated the severity of the recession as demand around the globe evaporated. In the first three month of the year, US production fell at an annualized rate of 20%! But as the ISM survey indicated in April, the pace of the contraction is slowing.
With the drop in overall production, capacity utilization slipped from 69.4% in March to 69.1% in April. This came in slightly above forecasts but once again set another 42-year low. The exceptionally high level of slack in the economy highlights the severity of the recession.
The Empire Manufacturing survey is small in geographical scope and only looks at conditions in New York state but is valued because it provides the first glimpse of how manufacturers are performing in the current month.
Although still in negative territory, the index climbed 10 points in May to –4.6. A reading below zero indicates that activity is still contracting. However, the level stands at the highest since last August. Though the economy remains in a fragile state, the survey suggests that business conditions may be starting to stabilize.
The prices subcomponent of the index remained in negative territory, with prices received dropping 10 points to a record-low -27.3. I don’t believe this is a sign that deflation is poised to seep into the economy, but inflation is not an issue at this time. Meanwhile, the survey showed that employers continue to cut jobs. We're likely to see more big losses in nonfarm payrolls this month.
Separately, I've prepared a guide at Examiner.com on how to deal with the financial aspect of a layoff.
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