By John S. McClenahen U.S. industrial production increased 0.2% in May -- and has risen almost 2% since its most recent low in December 2001, says the Federal Reserve. Its index now stands at 139.3 (1992 = 100). May's increase, however, was just half the 0.4% gain that most economists expected, suggesting that the recovery from recession indeed remains modest. Manufacturing, which along with mining and utilities makes up the index, also rose 0.2% in May. The largest gains in manufacturing were in electrical machinery, and industrial machinery and equipment, categories that include computers, office equipment, semiconductors and electronic components. The operating rate of U.S. factories increased 0.1% in May to 73.9%. Meanwhile, the U.S. Commerce Department reports that manufacturers' inventories, except for semiconductors, at the end of April totaled $1.114 trillion, down 0.2% from their March 2002 level -- exactly the decline that most economists had predicted. "The somewhat lackluster advance in industrial production and continued drawdown in inventories indicates that business confidence is holding back investment and restricting the strength of the recovery," says Thomas J. Duesterberg, president and CEO of the Manufacturers Alliance/MAPI, Arlington, Va.