EconoFACTS

June 17, 2022 | 10:16

U.S. Industrial Production Crawls Forward in May

Economist

Economist
Economics

Erik conducts research on financial product market trends, emerging risks and macroeconomic trends for the Bank.... (Read more)

Erik Johnson

Economist
Economics

Erik conducts research on financial product market trends, emerging risks and macroeconomic trends for the Bank.... (Read more)

U.S. industrial production inched up 0.2% in May, a few ticks below consensus. The good news was that April was revised up (1.4% rise instead of 1.2%). So far this year, output has increased every month with an impressive 0.8% average gain. That leaves production 4.3% above its pre-pandemic level, though there are warning signs that things are slowing against a backdrop of sharply rising producer prices and tightening financial conditions.

Highlighting the darkening outlook, manufacturing output fell 0.1% (consensus +0.3%) after growing by an average of nearly 1% of the past three months. Hinting at some initial signs of slowing consumer demand, durables fell a tick more than the overall sector. The largest drops were in wood products (slowing housing market) and machinery (likely supply chain related). It was not all bad news for the manufacturing sector, however, as motor vehicle assembly reached 10.72 mln units (annualized) in May—a feat it hadn't achieved since January 2021. Improving auto production is a sign that at least some supply chains are easing, though at a much slower pace than any of us would like.

With warmer temperatures spreading across the country in May, utilities saw output rise 1.0%, as demand for air conditioning perked up. Strong commodity prices helped propel mining output up 1.3%. That completes a three-month run since the outbreak of the Russia-Ukraine war where production in the sector has increased by 25% annualized.

Capacity utilization edged up 0.1 ppts to 79.0% (also below expectations), which brings it within 0.5 ppts of its long-run average. Manufacturing capacity utilization fell 0.1 ppts to 79.1%. That still leaves utilization in the sector 3.6 ppts above its pre-virus level and 1.0 ppt above its long-run average.

Bottom Line: Industrial production flashed some signs of weakness in May (both from demand and supply), which may be a harbinger of things to come as households and businesses try to cope with surging inflation and rising interest rates.

Table 1 - United States — Industrial Production

(month/month % change : s.a.)

Source: BMO Economics, Haver Analytics