Before the downdraft in auto production that hits in May and June, April industrial production fell 0.5 percent with weakness in machinery and mining. Construction supplies fell again, consistent with the housing correction. Capacity utilization signals weak profits and no pricing power. Data are consistent with our recession outlook.

Cyclical and Secular Weakness in Manufacturing

• Two sectors provide a picture of two different forces acting on manufacturing. On the cyclical front, business equipment production has declined 13 percent compared to a year ago. While the decline this cycle is exaggerated, the pattern of production remains very cyclical.

• On the structural front, the long-term decline in trend growth for textile production remains intact.

High Tech and Capacity Utilization

• High tech output has fallen more sharply in this recession than during the bust. The weakness in computers reflects the fundamental deficiency in corporate profits and a lack of business confidence in the future.

• Lower capacity utilization rates indicate a lack of pricing power for many companies and continued weak profits. The sharp drop-off is pronounced for primary goods.