US industrial output falls 0.4% in May, manufacturing slips

[WASHINGTON] US industrial production fell more than expected in May on a decline in utilities output and auto manufacturing, the Federal Reserve said on Wednesday, a sign that the economy may be losing some steam in the second quarter.

Industrial output declined 0.4 per cent last month after a downwardly revised 0.6 per cent increase in April.

Economists polled by Reuters had forecast industrial production slipping 0.2 per cent last month.

The industrial sector measured by the US central bank comprises manufacturing, mining, and electric and gas utilities.

It has shown tentative signs of green shoots after a downturn over the past 18 months that was due to weak global demand, a strong dollar and fall in oil prices.

However, the data showed that despite the dollar's rally fizzling out and a rise in oil prices, industrial production remains tepid across the board.

Last month, manufacturing output fell 0.4 per cent and the output of consumer goods declined 0.7 per cent. A 2.2 per cent drop in consumer durables reflected fewer automotive products but also declines for home electronics, appliances and furniture, the Fed said.

Business equipment spending also faltered, down 0.7 per cent. The Fed has become increasingly worried about soft business investment.

The index for utilities fell 1.0 per cent. Mining rose 0.2 per cent due to a ramping up in coal mining while oil and gas extraction was little changed.

With overall output decreasing, the per centage of industrial capacity in use fell 0.4 percentage points in May to 74.9 per cent, from a downwardly revised 75.3 per cent in April.

The Fed sees capacity use as a leading indicator in deciding how much further the economy can grow before sparking higher inflation.

REUTERS