Industrial Production Mar 2025: Capacity Utilization, Pregame

Industrial Production was solid and steady with total manufacturing, durables, and nondurables up. The real action is ahead.

Apr 16, 2025

Crank it up. Tariffs are coming! Time to build inventory and turn it fast.

Manufacturing and Durables saw capacity utilization rise with the major Durables industry groups doing well. While Nondurables were flat, the two industry lines rose.
One natural question to ask on the way into the uncertain arrival of even more tariffs is how much industrial activity was to preload low-cost inventory before the supplier chains got hit with tariffs and whether the “material to supplier to OEM” chain wanted to clear out what they had on the books and quickly restock.
Another question is whether the lower cost inventory facing tariffs ahead saw price increases early and often or was the focus more on inventory turnover at lower prices and then restocking quickly ahead of the coming tariff endurance contest.
The irony of inventory building is that it can prop up GDP investment lines when the economic toll of tariffs will show up later as inventory gets run down and demand weakens at higher prices. Today’s other release on manufacturing inventories comes at a lag and only covers Feb 2025. The tariff time compression has been brutal for manufacturers.

The above chart plots the long-term trend line for total manufacturing utilization. We see a slight uptick in the total sequentially as the Durables line rose and the Nondurables were flat. Gauging how different industries might have been reacting to the tariff threats that were going to kick in during April gets tricky. We can assume many were blindsided by the reciprocal tariff numbers as they rolled out and wished they had done more in March. Delivery times lag on shipping, so the prep would have needed to start earlier.

“Solving for X” is a challenge in terms of the motives behind production rate trends, but working capital management planning will get answered soon enough as the impact of current tariffs in place slowly melt into the 90-day pause effects and the next wave of Section 232 tariffs that are pending.

Whether raw materials, supplier chain output, or finished products facing tariffs now (steel, aluminum, lumber, gypsum etc.) or soon (more tariffs on copper, lumber, pharma, semis, strategic metals) with more coming after the resolution of reciprocal negotiations, there were plenty of reasons to speed up in March and carry that into April.

The above table gives the high-level buckets. We include total industry, which was down on weakness in utilities. Total manufacturing had a decent month as noted earlier with the tick higher to +77.3% from 77.1%. That is set against the long-term median of 78.7% from 1967 but slightly below the post-COVID median of 77.5%. The post-crisis to COVID median was +75.6%, so March was comfortably above that dismal period.

The above table details the largest industry groups we monitor each month with this release. We see all 5 Durables lines higher sequentially and both of the major Nondurables lines higher. The 7 for 7 positive would be good news in a vacuum, but the question of “Why” gets back to the Tariffs of Damocles hanging over production planning in March 2025.

The above table updates the capacity utilization history for expansions and recessions. The ability of more companies to generate solid profits at lower capacity utilization in today’s markets is tied in part to automation and in part to the development of low-cost supplier chains. Low-cost supplier chains are now fatally threatened by tariffs and many will be taken off life support.

Those supply chains had comprised the risk mitigating structural advantages of global sourcing that will be dead as of 2025. The policy architects came around to warnings of “mild disruptions” and a “little pain” but chaos has ensued as reciprocal tariffs were unveiled (see Reciprocal Tariff Math: Hocus Pocus 4-3-25, Reciprocal Tariffs: Weird Science Blows up the Lab 4-2-25). It will get worse as the effects are felt at the transaction level, more tariffs come into effect, and more retaliation actions are taken as trade partners (EU, Canada, Mexico) exhaust all hope and feel the pain.