With a drop in manufacturing output offsetting increases in mining and utilities production, the Federal Reserve released a report on Friday showing an unexpected decrease in U.S. industrial production in the month of May.
The report showed that production edged down by 0.1 percent in May after a downwardly revised 1.0 percent increase in April. Economists had expected production to come in unchanged following the 1.1 percent increase originally reported for the previous month.
Contributing to the drop in production, manufacturing output fell by 0.4 percent in May following an upwardly revised 0.7 percent increase in April.
The drop in manufacturing output was due in large part to a 1.5 percent drop in the production of motor vehicles and parts, which came after a 4.0 percent jump in April.
Meanwhile, the report showed that mining output rose by 0.9 percent in May after falling by 0.6 percent in April. Utilities output increased by 0.8 percent after surging up by 5.3 percent in the previous month.
Despite the monthly decrease, the Federal Reserve noted that total industrial production in May was 4.7 percent above its year-earlier level.
The Fed also said that capacity utilization edged down to 79.0 percent in May from 79.2 percent in April. Economists had expected the capacity utilization to come in unchanged.
Capacity utilization in the manufacturing sector fell to 77.6 percent in May from 78.0 in April, while capacity utilization in the mining and utilities sectors rose to 89.2 percent and 76.5 percent, respectively.
Paul Ashworth, Chief U.S. Economist at Capital Economics, said, "Coupled with the earlier news of a slump in June's Empire State manufacturing index, May's industrial production figures demonstrate that the U.S. factory sector is struggling to cope with the impact of the renewed recession in Europe and the slowdown in many key emerging markets."
"This supports our long-held view that U.S. economic growth will be no better than 2.0% this year and, given the financial instability in the euro-zone, the risks to that forecast lie mainly on the downside," He added.
Earlier in the day, the New York Federal Reserve released a report showing a much bigger than expected decrease by its index of regional manufacturing activity.
The New York Fed said its general business conditions index fell to 2.3 in June from 17.1 in May, although a positive reading still indicates growth in regional manufacturing activity. Economists had expected the index to show a much more modest decrease to a reading of 13.8.
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