KEY DATA: IP: -0.3%; Manufacturing: 0%; Oil and Gas Well Drilling: -14.5%

IN A NUTSHELL: “The energy sector contraction is slowing things down, but there are other sectors where the economy’s underlying strength is showing through.”

WHAT IT MEANS: No good deed goes unpunished and that is the case with the lower energy prices. The precipitous drop in oil prices has led to a massive reduction in energy sector activity that has yet to be offset by consumers spending their windfall. Nothing shows that more than the April industrial production numbers. Output fell for the fifth consecutive month, led by declines in utilities and mining. Oil and gas drilling is down 46.5% over the year. But there were some solid output gains, especially in durable goods manufacturing. Strong demand led to a ramping up of assembly rates in the vehicle sector. There were also robust increases in the electrical equipment and appliances sector, wood products and minerals. This helped the durable goods segment post a modest rise. But there was weakness in the non-durables component. In addition to energy, the food sector also came in with a large decline. I cannot say for certain, but the growing avian influenza epidemic may be having an impact on that segment of the economy. That offset decent gains in printing and petroleum products. In other words, there were a lot of ups and downs in this report.

Two other releases added to the uncertainty about the economy. Surprisingly, the University of Michigan’s mid-month reading of consumer sentiment dropped sharply. What is totally bizarre is despite some of the lowest jobless claims numbers on record, workers are once again worried about losing their jobs. It used to be that if you looked to your left and someone was gone, you got worried. If you looked to your right and that person was also no longer there, you panicked. Now, even though everyone is still working next to you, people are concerned. A second report, the New York Fed’s Empire State Manufacturing Index, indicated that activity and orders picked up in early May, but the rate of growth was nothing spectacular.

MARKETS AND FED POLICY IMPLICATIONS: Today’s numbers raise the possibility that the expected spring sprint is turning into a slow walk. The economy is growing, but the hangover in the oil patch and consumer uncertainty is keeping activity from expanding at a strong pace. Second quarter growth should be good, but the hopes for a repeat of the over-4% rise posted in the spring of 2014 are becoming dashed. That should keep the Fed on hold at least through June. With the FOMC being data driven and given it is unclear how long the data have to be strong to actually elicit a rate hike, it is hard to rule out any future meeting. But we will have to have strong May and June employment and consumer spending numbers if July is to come into play. That is probably how investors will read today’s data as well.