The Federal Reserve’s monthly gauge of industrial activity reached its highest level in more than 100 years of the index’s history, according to data released by the central bank Friday, thanks to a jump in automobile production.
The Fed’s index for industrial production rose to 104.6 in March, an increase of 0.9 percent, despite supply chain disruptions and shortages driven by the war in Ukraine.
The index measures how much industrial output has increased or decreased compared to the average in a specific year — currently 2017. That means industrial production last month was equal to 104.6 percent of its 2017 level, the highest level since the Fed began calculating the index in 1919.
“The strong performance of the industrial sector should give gross domestic product growth in the first quarter a needed boost especially with consumption hampered by elevated inflation,” wrote Tuan Nguyen, an economist at audit and tax firm RSM.
A surprisingly strong boost to industrial production is a welcome sign for the U.S. economy as rising prices for oil, gas, commodity crops, minerals and other key resources deepen supply chain backlogs across the world. COVID-19 shutdowns in China and enhanced inspections for trucks entering Texas from Mexico have also added pressure to supply chains amid the highest annual inflation in more than 40 years.
Economists have grown increasingly concerned the Fed may need to raise interest rates to levels high enough to severely slow the economy in order to curb inflation.
“The void in global and domestic demand, especially in energy and raw production materials as a result of the war in Ukraine, might have given American producers the opportunities to increase production,” Nguyen wrote.
Domestic automobile production rose 7.8 percent, the largest increase among manufacturing industries, and mining posted the largest gain among commodity producers with a 1.7 percent increase.
“The total number of vehicles produced in March reached 9.75 million, the highest since January last year. But auto production remained subdued compared to pre-pandemic levels as manufacturers continued to face a shortage of chips,” Nguyen said.