Total industrial production increased 0.7 percent in April. The indexes for mining and utilities increased 0.7 percent and 2.6 percent, respectively; the index for manufacturing rose 0.4 percent despite a drop in motor vehicle assemblies that principally resulted from shortages of semiconductors. An important contributor to the gain in factory output was the return to operation of plants that were damaged by February's severe weather in the south central region of the country and had remained offline in March. The weather-induced drop in total industrial production in February and the subsequent rebound in March are now estimated to have been larger than reported last month. At 106.3 percent of its 2012 average in April, total industrial production has moved up 16.5 percent from its level in April 2020 (the trough of the pandemic), but it was 2.7 percent below its pre-pandemic (February 2020) level. Capacity utilization for the industrial sector rose 0.5 percentage point in April to 74.9 percent, a rate that is 4.7 percentage points below its long-run (1972–2020) average.

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##### U.S. Economic Outlook and Monetary Policy - Vice Chair Richard H. Clarida (05.12.2021)

###### Current Economic Situation and Outlook

In February 2020, none of us could have imagined that in a few short weeks the COVID-19 pandemic and the mitigation efforts put in place to contain it would deliver the most severe blow to the U.S. economy since the Great Depression. Gross domestic product (GDP) collapsed by more than 30 percent at an annual rate in the second quarter of 2020; more than 22 million jobs were lost, wiping out a decade of employment gains; the unemployment rate rose from a 50-year low of 3.5 percent in February to almost 15 percent in April; and inflation plummeted in response to a collapse in aggregate demand that dwarfed the contraction in aggregate supply. But with the benefit of hindsight, it is clear that the economy has proven to be much more resilient than many forecast or feared one year ago. With timely support from monetary and fiscal policy—unprecedented in both scale and scope—and the rapid development and deployment of several effective vaccines, the economy stabilized and began a robust recovery in the second half of 2020 that both we and outside forecasters expect to pick up steam this year. So far, the economic activity data we have received this year is consistent with this outlook. For example, GDP rose by an impressive 6.4 percent in the first quarter, with real final sales to private domestic purchasers up an eye-popping 10.6 percent. Household spending on goods is rising robustly, and spending on services is also picking up as contact-intensive sectors begin to reopen and recover. Business and residential investment have more than fully recovered from the 2020 collapse and are operating above pre- pandemic levels. However, after looking at the details of Friday's disappointing employment report, the near-term outlook for the labor market appears to be more uncertain than the outlook for economic activity. Employment remains 8.2 million below its pre-pandemic peak, and the true unemployment rate adjusted for participation is closer to 8.9 percent than to 6.1 percent. At the recent pace of payroll gains—roughly 500,000 per month over the past three months—it would take until August 2022 to restore employment to its pre-pandemic level. But what this necessary rebalancing of labor supply and demand means for wage and price dynamics will depend importantly on the pace of recovery in labor force participation as well as the extent to which there are post-pandemic mismatches between labor demand and supply in specific sectors of the economy and how long any such imbalances persist.

Capitol Comments May 2021 Page 18