U.S. Industrial Production Increased in May But Manufacturing Output Fell

By Xavier Fontdegloria

U.S. industrial production posted another gain in May, the fifth increase in as many months, but factory output weakened as firms struggled with supply-chain bottlenecks and high costs.

Industrial production--which includes factory, mining and utility output--rose 0.2% in May compared with the previous month, losing pace compared with the revised 1.4% increase registered in April, according to data from the Federal Reserve released Friday.

Economists polled by The Wall Street Journal expected industrial output to expand 0.4%.

The U.S. manufacturing sector, the biggest component of industrial production, decreased by a marginal 0.1% in May compared with the previous month, its first decline since January. Production of motor vehicles and parts rose 0.7%, while the largest drops were in wood products and machinery, with declines of 2.6% and 2.1%, respectively.

U.S. industrial production has risen every month this year, in a sign that manufacturers have been able to work through backlogged demand despite persisting supply-chain bottlenecks and increasing costs.

Industrial activity should remain supported in the coming months, but there are risks of a slowdown due to renewed challenges stemming from the war in Ukraine and China's Covid-19 policy, as well as an expected shift in demand as consumers spend more on services, economists say.

"The decline in manufacturing production in May could partly be related to new supply and transportation disruptions resulting from geopolitical conflicts and lockdowns in China, highlighting that inflationary risks from supply issues are still present," Citi's economist Veronica Clark said in a note ahead of the data release.

Weakening output in the key manufacturing sector was offset by a 1.3% increase in mining production amid higher petroleum prices. Utilities output increased 1% on month as unseasonably warm weather in May fueled demand for air conditioning, the Fed said.

Capacity utilization, which reflects how much industries are producing compared with what they could potentially produce, edged up slightly to 79% in May. Capacity utilization for the manufacturing sector decreased marginally to 79.1%.

Write to Xavier Fontdegloria at xavier.fontdegloria@wsj.com

(END) Dow Jones Newswires

June 17, 2022 10:03 ET (14:03 GMT)

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