WASHINGTON-The Federal Reserve has reported that overall U.S. industrial production rose a strong 0.6 percent in March, capping a strong first quarter. However, David Huether, chief economist with the National Association of Manufacturers, warns that activity may cool off as the year progresses.
"With manufacturing production having surged at a 9.5 percent annual growth rate in the fourth quarter, we've clearly seen a turnaround from the first half of 2005 when we were averaging less than 2 percent growth," Huether says. "But, with gasoline prices on the rise again, consumer spending should moderate in the second quarter."
Huether adds that the Federal Reserve's string of recent interest rate increases has already worked to remove significant stimulus from the economy.
With regard to recent growth, Huether says the biggest March gains came in machinery, motor vehicles and apparel products. "It's...noteworthy that first quarter nondurable manufacturing production actually beat durable output for the first time since the current recovery began," Huether says. "The nondurables leading the way with double-digit growth included apparel, printing products, and petroleum and coal products."
Huether attributes this "atypical" pattern to the rebuilding of petrochemical manufacturing along the Gulf Coast and an "energetic bounce in consumer spending" spurred by mild weather and lower-than-expected heating bills.
"Though the Fed is expected to raise rates again next month, it should be wary of further increases absent clear signs of an overheating economy," Huether says.