Boosted by cold weather and auto assemblies, IP beat expectations in March and raised our Q1 GDP tracking
Industrial production surprised on the upside in March, beating our expectation and the Bloomberg consensus by four-tenths and two-tenths, respectively. However, while the details raised our Q1 GDP tracking by one-tenth (to 3.2%), the report cannot be considered strong.
Unusually cold weather in March (a 2-standard-deviation event), following normal temperatures in February, led to a surge in utilities IP that added roughly 0.5 percentage point to the change in total IP. This raised our estimate of real PCE in March, but could easily get reversed in April.
Vehicle assemblies were above schedule, implying more motor vehicle output in Q1 than we previously estimated. Still, while this raised our estimate of inventory investment in Q1, it lowered our forecast of growth of motor vehicle output and GDP in Q2.
Excluding the effects of utilities and motor vehicles and parts, IP declined roughly 0.3% in March.
Separately, total IP rose 5.0% in the first quarter. This is consistent with our latest tracking of 3.2% GDP growth in the first quarter.
GDP Implications (Q1: +0.1% pt.; Q2: -0.2% pts.): Upward adjustments to PCE utilities and motor vehicle inventory investment in March raised our estimate of Q1 GDP growth by one-tenth to 3.2%. After rounding, the reversal of these effects lowered our tracking forecast of Q2 GDP growth by two-tenths to 1.1%.