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May 15, 2025

April industrial production was unchanged, which came near the consensus expectation of 0.1% growth. Manufacturing output declined 0.4%, led by a 1.9% drop in the production of motor vehicles and parts.

In the previous two months, motor vehicles and parts rose a combined 11.5% as automakers boosted production; that was before reciprocal tariffs were announced in early April. Some manufacturers have said that new vehicle prices go up by a couple of thousand dollars. We expect new vehicle sales to be negatively impacted by the impending price shock. This will likely reduce new vehicle production and result in layoffs in the sector.

The decline in manufacturing output is consistent with the Institute for Supply Management (ISM)'s manufacturing survey. The production index fell to 44.0 in April, reaching its lowest reading since the COVID recession. Below 50 indicates production contracted. Similarly, the new orders index was 47.2 in April, the third straight month for a below-50 result. The soft ISM data portends weak production activity in the quarters ahead.

Mining output fell 0.3%, the first drop in three months. Oil and gas well drilling declined 1.7%, the steepest drop in five months. The price of West Texas Intermediate crude oil is currently $61.76 per barrel; it dipped below $60 at the end of April. That is below the breakeven price for new wells to be drilled. According to a Dallas Federal Reserve Bank survey from March 2025, the majority of firms reported that their breakeven prices were $62 or higher.