Weak US economic figures point to modest Q2 growth
US industrial production unexpectedly fell for a fifth straight month in April due in part to a further decline in oil and gas drilling, suggesting that the economy is growing at only a modest pace in the second quarter.
The economy’s struggle to pick up steam after a dismal first quarter was underscored by other data on Friday showing a drop in consumer confidence to a seven-month low in early May and only a mild rebound in factory activity in New York state.
Coming on the heels of weak retail sales and producer inflation data this week, the reports suggest the Federal Reserve will probably not raise interest rates anytime soon.
“It means in the next month or so we are unlikely to see a massive rebound in growth momentum. These are not the numbers that would inspire confidence in the Fed to tighten policy,” said Millan Mulraine, deputy chief economist at TD Securities in New York.
Industrial output slipped 0.3 percent after a similar decline in March, the Fed said. Economists had expected a 0.1 percent gain.
A plunge of 14.5 percent in oil and gas well drilling pushed mining production down 0.8 percent last month. It was the fourth straight monthly decline in mining output.
Crude oil prices have fallen by about 50 percent since last June, resulting in a sharp drop in well drilling activity.
Companies like Schlumberger , the world’s No. 1 oilfield services provider, and Halliburton have slashed their capital spending budgets for this year. Caterpillar Inc. has cut its 2015 profit outlook and warned that lower oil prices would hurt its energy equipment business.
Oil and gas drilling is down 46.5 percent over the year and there is no relief in sight despite the recent stabilization of crude oil prices. Oil rig counts continued to decline early in the second quarter.
“We see a further drop in mining investment over the next few quarters and are not convinced that business investment ex-mining will be strong enough to sufficiently offset this drag,” said Michelle Meyer, a senior economist at Bank of America Merrill Lynch in New York.
In a separate report, the University of Michigan said its consumer sentiment index fell to 88.6 early this month, the lowest reading since October, from 95.9 in April.
There were slight declines in consumers’ attitudes toward purchases of motor vehicles and homes.
While economists noted the weak relationship between consumer confidence and consumer spending, they nevertheless saw May’s decline as unfavorable. Many of them believe that consumer spending will accelerate in the second quarter as households start drawing on their savings from relatively cheap gasoline prices.