US DATA: Strong First Quarter For US Industry, But Slowdown Looming

March industrial production was largely as expected, with headline IP growing contracting by 0.3% M/M  (-0.2% survey) but prior upwardly revised by 0.1pp (+0.8%). Manufacturing production rose by 0.3% (0.2% survey 1.0% prior upwardly revised from 0.9%). Capacity utilization fell slightly (77.8% vs 78.2% prior).

• Dragging on IP was the utilities sector's 5.8% drop in output, "as temperatures were warmer than is typical for the month" (per the Fed report), a second consecutive month  of contraction (-1.5% prior) - but this volatile category still posted 4.4% growth on a Y/Y basis (compared with 1.3% for IP as a whole). Mining also slowed in March, to 0.6% after 1.7% prior.
• Within the major final products categories, consumer goods saw a strong pullback (-1.0% M/M after 0.5% prior), and has barely grown in the past year (0.3% Y/Y), though business equipment fared better (1.7% M/M after 1.8%).
• Despite the March contraction, IP posted annualized growth of 5.5% in the first quarter of the year, the best 3M reading since May 2022. Overall manufacturing rose 5.1% for the quarter (annualized), led by durables (7.9%). There were some idiosyncrasies here, with motor vehicles and parts production jumping by 9.2% in February (likely tariff front-running) with the aerospace index rising 65% after contractions in previous quarters, potentially reflecting the end of a work stoppage at Boeing in Q4.
• Looking ahead to Q2, core durable goods orders have slowed since late last year while ISM Manufacturing has returned to contractionary territory (joining multiple other indicators in pointing to a tariff-related retrenchment), suggesting that the best may be behind the sector which could a pullback in activity in Q2.