Industrials decline reverting to weaker trend

Industrial production fell 0.2% in May, reverting to its weaker trend, after posting a 0.5% jump in April. The result fell short of expectations for a 0.1% rise.

A 1.8% drop in utility output, along with a 0.4% drop in mining output, pulled overall production lower in May. Manufacturing production managed to escape the contraction with a 0.1% increase although it is down sharply from +0.9% in April. Motor vehicles and parts output rose 0.2% while machinery output fell 0.5%.

As for capital spending, business equipment output declined 0.1%. In particular, information processing equipment fell 0.8%, with no appreciable benefit from ChatGPT yet, although the durable goods orders report indicates that orders are building in the pipeline. Industrial equipment output, another measure of business spending, decreased 0.7% in May. 

Industrial production is barely hanging on, up 0.1% in May from a year ago. Aside from the cyclically weather-sensitive utility sector, manufacturing output, which accounts for three-quarters of overall industrial output, has been in and out of negative territory in the last six months, averaging -0.4% on an annual basis. Goods producers continue to right-size their production schedules to adjust for the collapse in demand from their COVID peaks.