WASHINGTON (Reuters) - Production at U.S. factories increased more than expected in May, recouping all the declines in the prior two months, but the momentum is unlikely to be sustained amid higher interest rates and softening demand for goods.
Manufacturing output jumped 0.9% last month following a downwardly revised 0.4% drop in April, the Federal Reserve said on Tuesday. Economists polled by Reuters had forecast factory output rebounding 0.3% after a previously reported 0.3% fall in April. Production at factories had declined in March and April. It gained 0.1% year-on-year in May.
Manufacturing, which accounts for 10.4% of the economy, has been hamstrung by higher borrowing costs. An Institute for Supply Management survey published earlier this month found that "demand remains elusive as companies demonstrate an unwillingness to invest due to current monetary policy and other conditions. The ISM said "these investments include supplier order commitments, inventory building and capital expenditures."
Spending on goods declined in first quarter for the first time in 1-1/2 years. The Fed last week kept its benchmark overnight interest rate in the 5.25%-5.50% range, where it has been since last July. U.S. central bank officials pushed out the start of rate cuts to perhaps as late as December, with policymakers projecting only a single quarter-percentage-point reduction for this year.
Motor vehicle and parts output rebounded 0.6% last month after tumbling 1.9% in April. Durable goods manufacturing production increased 0.6%. There were large increases in the output of wood products, machinery, computer and electronic products as well as furniture and related products.
Nondurable manufacturing production shot up 1.1%, with a 1.5% fall in printing and support offset by sturdy gains elsewhere.
Mining output climbed 0.3% after falling for two straight months. Utilities production advanced 1.6% after rebounding 4.1% in the prior month. Overall industrial production accelerated 0.9% in May. That followed an unchanged reading in April. Industrial production rose 0.4% year-on-year in May.
Capacity utilization for the industrial sector, a measure of how fully firms are using their resources, rose to 78.7% from 78.2% in April. It is 0.9 percentage points below its 1972–2023 average. The operating rate for the manufacturing sector increased to 77.1% from 76.6% in the prior month. It is 1.1 percentage points below its long-run average.