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Industrial Production In U.S. Unexpectedly Dropped In May

Industrial Production in U.S. Probably Expanded at Slower Pace

Trailers on the assembly line at the Airstream Inc. manufacturing facility in Jackson Center, Ohio, on June 6, 2012. The U.S. Federal Reserve is scheduled to release industrial production data on June 15.

By Alex Kowalski

Industrial production in the U.S. unexpectedly fell in May for the second time in three months as factories turned out fewer vehicles and consumer goods.

Output at factories, mines and utilities decreased 0.1 percent last month after a revised 1 percent gain in April, the Federal Reserve reported today in Washington. Economists forecast a 0.1 percent advance, according to the Bloomberg News survey median. Manufacturing, which makes up about 75 percent of total production, dropped 0.4 percent last month.

Less factory production represents a pause in the industry that helped the world’s largest economy emerge from recession three years ago. Slumps in some parts of Europe and a slowdown in Asia may temper demand for U.S.-made products at the same time companies limit purchases of new equipment.

“Manufacturing looks to have softened in May,” Dean Maki, New York-based chief U.S. economist at Barclays Plc, said before the report. “But manufacturers are still doing reasonably well, especially in comparison to other parts of the world, especially Europe. Part of is that demand growth in the U.S. is stronger than in Europe.”

Projections from the 79 economists in the Bloomberg survey ranged from a decline of 0.3 percent to an increase of 1.1 percent. April’s industrial production figure was previously reported as a 1.1 percent gain.

Stock-index futures held gains after the figures and as investors awaited Greece’s election this weekend. The contract on the Standard & Poor’s 500 Index expiring in September rose 0.1 percent to 1,327.6 at 9:19 a.m. in New York.

Motor Vehicles

The release showed motor vehicle and parts production dropped 1.5 percent in May after a 4 percent surge the month before. Autos in May sold at a 13.73 million annual rate, down from 14.38 million in April and the slowest this year, according to data from Ward’s Automotive Group.

Factory output excluding production of vehicles and parts fell 0.3 percent in May after a 0.5 percent gain. Output of business equipment increased 0.3 percent after a 1.5 percent jump in April.

Production of consumer goods decreased 0.2 percent after a 1.4 percent April gain.

Utility production climbed 0.8 percent last month after a 5.3 percent jump in April. Mining output increased 0.9 percent following a 0.6 percent decrease.

U.S. Industrial Production Unexpectedly Declined

An employee assembles the roof windows of a trailer on the assembly line at the Airstream Inc. manufacturing facility in Jackson Center, Ohio.

Capacity Utilization

Today’s report also showed that capacity utilization, which measures what portion of a plant is producing, fell to 79 percent from 79.2 percent in April.

Another report today showed New York-area factories expanded this month at the slowest pace since November. The Federal Reserve Bank of New York’s general economic activity index dropped to 2.3 from 17.1 the prior month. Readings greater than zero show expansion by manufacturers in the so-called Empire State Index, which covers New York, northern New Jersey, and southern Connecticut.

Other figures highlight an easing in the pace of manufacturing, which accounts for about 75 percent of total production. A national barometer of factory strength, the Institute for Supply Management’s index of manufacturing fell in May after reaching a 10-month high in April. The index’s gauge of production dropped, while its new orders measure advanced.

Job creation at factories has slowed as well. Weekly hours worked by manufacturing employees slid to 40.5 in May, the lowest in six months, Labor Department data show. The number of workers added to factory payrolls last month was three times less than the average in the first quarter.

Holding Up

While car and truck sales retreated last month, a separate report from the Fed suggests auto manufacturing is holding up. Demand was strongest in vehicle and steel production, and manufacturing continued to expand, the central bank said in its Beige Book report on economic activity in its districts from early April to late May.

Factories turned out 10.39 million motor vehicles at an annual pace last month after a 10.67 million rate in April, the strongest two months since 2007, today’s Fed figures showed.

Recovery in the housing market, which has lagged behind the rest of economy, may also boost business at producers that service homebuilders.

“Spending time with homebuilders, suppliers of every single product that goes into a house, from asphalt shingles to installation, wood products, concrete, wiring, plumbing fixtures, there’s a sense of optimism in the homebuilding industry today that has lasted for more than a couple months,” Dan Fulton, the chief executive officer of timber company Weyerhaeuser Co. (WY), said during a June 13 investor conference “The market continues to feel like it’s got legs.”

Industrial Production In U.S. Unexpectedly Dropped In May

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