WASHINGTON (Bloomberg) – U.S. factory production unexpectedly declined in May, restrained by ongoing supply challenges and hints of cooler demand.
The 0.1% decrease followed a 0.8% increases in the prior two months, Federal Reserve data showed Friday. Total industrial production, which also includes mining and utility output, rose 0.2% last month.
Median forecasts in a Bloomberg survey of economists called for a 0.3% advance in factory output and a 0.4% gain in overall industrial production.
The disappointing factory output figure suggests rising borrowing costs, more moderate demand for some consumer merchandise and concerns about a broader economic slowdown are beginning to temper the pace of manufacturing.
The Fed on Wednesday raised interest rates by the most since 1994 in an intensified effort to curb inflation, which Chair Jerome Powell said is largely being fuelled by forces outside of its control. Since the Fed doesn’t have the tools to affect such supply shocks, it’s trying to bring demand down.
The drop in May’s manufacturing output reflected decreased production of wood products, machinery, and appliances and electrical equipment, the Fed’s report showed.
Production of business equipment increased 0.3 per cent, the smallest gain in four months. Output of consumer goods also cooled, rising just 0.1 per cent.
Motor vehicle output climbed 0.7 per cent after sizable gains in the prior two months, further indicating semiconductor supply shortages are dissipating. Excluding autos, factory output fell 0.1 per cent, the first drop since January.
Capacity utilization at factories decreased to 79.1 per cent from 79.2 per cent, the Fed’s report showed.
The data also showed a 1 per cent increase in utility output and a 1.3 per cent gain in mining. Oil and gas well drilling advanced 6.2 per cent, also the most since January, and is 57.2% higher than a year earlier.
Regional surveys so far this month have shown a weakening in manufacturing. A gauge of New York state manufacturing activity unexpectedly contracted for a second month in June, while a gauge of business activity in the Philadelphia area shrank for the first time since May 2020.