U.S. factory production fell in May by the most since January 2014, weighed down by fewer truck assemblies and still consistent with a steady outlook for manufacturing, Federal Reserve data showed Friday.
The Federal Reserve said Friday that the manufacturing component of industrial production fell 0.7 percent. Total industrial production, which also includes mines and utilities, decreased 0.1%. Capacity utilization, measuring the amount of a plant that is in use, dipped to 77.9% from 78.1%.
A May 2 fire damaged the main plant at the Meridian Magnesium Products of America factory in Eaton Rapids, Michigan that makes motor vehicle parts. As a result, Ford had to temporarily lay off 7,600 workers as it cuts production of the F-Series pickup truck, the top-selling vehicle in America.
The Fed’s monthly data are volatile and often get revised. Manufacturing, which makes up 75 percent of total industrial production, accounts for about 12 percent of the U.S. economy.
To be sure, the monthly drop should be followed by a rebound this month, said Daniel Silver, an economist at JPMorgan Chase.
“Disruptions associated with the fire should be temporary, and auto production schedules point to an increase in related output in June, undoing at least a good portion of the May decline,” he said.
Other recent reports have indicated factories are on steadier ground. U.S. manufacturing expanded at a faster pace in May, with order backlogs rising by the most in 14 years, while prices for materials continued to pick up, according to a survey released earlier this month by the Institute for Supply Management.
Along with supply constraints that are pushing up materials prices, escalating concerns about tariffs pose a headwind to manufacturing. A stronger dollar also threatens to undermine demand for U.S. exports. At the same time, lower corporate and consumer taxes and a strong job market that’s boosting household demand will underpin business investment in coming months.
The factory-use rate cooled to 75.3 percent from 75.9 percent a month earlier, and remains 3 percentage points below its long-run average.
Output at factories for metal, electrical equipment and apparel also declined, along with the 6.5 percent drop for motor vehicles and parts.
Still, factory output has improved 1.7 percent over the past year and overall industrial production has increased 3.5 percent. Other reports point to continued gains for manufacturers, although the tariffs announced by the Trump administration have generated turmoil and uncertainty.
President Donald Trump announced on Friday a 25 percent tax on $50 billion worth of Chinese imports, part of his effort to reduce the trade gap with the world’s second largest economy. The tariffs prompted China to counter that it will retaliate with its own tariffs. The dispute could lead to higher prices and harm U.S. factories that depend on parts and raw metals from around the world, although Trump has said the moves will lead to a domestic manufacturing renaissance.
Trump has also announced steel and aluminum tariffs on U.S. allies such as Canada, Mexico and the European Union.
The utilities component of industrial output rose 1.1 percent in May. Mining output advanced 1.8 percent.
Meanwhile, the Empire State manufacturing survey rose 4.9 points in June to a reading of 25, the highest since October, the New York Fed said. Any reading of the diffusion index above zero indicates improving conditions. Economists polled by Econoday expected a reading of 19.1.
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