Decline in US Factory Output Shows Manufacturing Leveling Off

An unexpected decline in May factory output after the biggest gain in three years shows U.S. manufacturing is leveling off, Federal Reserve data showed Thursday.

Highlights of Industrial Production (May):

• Factory output declined 0.4% (est. 0.1% gain) after a 1.1% jump that was the largest since February 2014.

• Total industrial production, which also includes mines and utilities, was unchanged (est. 0.2% gain) after a revised 1.1% surge that was the strongest in nearly seven years.

• Capacity utilization, measuring the amount of a plant that is in use, edged down to 76.6% from 76.7%.

Key Takeaways

The report showed factory output dropped for the second time in three months, essentially little changed from February and reflecting broad declines that included less production of motor vehicles, business equipment and construction supplies.

Excluding cars and trucks, factory output also fell for the second time in three months. An acceleration in the near term looks unlikely given the slowdown in the auto industry, which had been a bright spot in recent years. A failure of businesses to accelerate investment -- as they wait for clarity on tax and regulatory reforms -- may also weigh on production.

At the same time, more stable energy prices and steady household spending will help underpin American factories, while improving overseas markets may give a boost to export-oriented production.

Other Details

• Utility output rose 0.4% after increasing 0.7% the prior month.

• Production of motor vehicles decreased 2% after a 4.1% gain in April and a 3.5% drop in March.

• Mining output climbed 1.6%; with oil and gas well drilling rising 3.8%, a slowdown from the previous months.

• Production of consumer goods picked up 0.2%, and output of business equipment dropped 0.7%.

• Output of construction supplies fell 0.3%.

By Shobhana Chandra