Industrial Activity Dips More Than Expected in May

Industrial production tumbled a larger-than-expected 1.1 percent in May as the recession crimped demand for a wide range of manufactured goods including cars, machinery and household appliances.

Manufacturing Cars
Gary C. Knapp
Manufacturing Cars

The Federal Reserve's report on Tuesday showed production at the nation's factories, mines and utilities has fallen for seven straight months. Output also turned out to be a bit weaker—a 0.7 percent decline—in April than the Fed initially reported.

The 1.1 percent drop registered in May was the deepest since a 1.8 percent plunge in March.

The recession has crimped demand in the U.S. for all kinds of manufactured goods, especially those related to the housing sector. Builders have cut back on new projects as they try to winnow swollen inventories of unsold homes and deal with a glut of foreclosed properties. Factories also are coping with less demand from foreign buyers struggling with their own economic problems.

Plant shutdowns at Chrysler LLC and General Motors Corp., which recently filed for bankruptcy protection, also weighed on industrial production last month and probably will continue to do so through part of the summer, economists say.

Against that backdrop, industrial companies idled more of their plants and equipment. The overall operating rate fell to 68.3 percent in May, a record low dating to 1967. The previous low was set in April, when operating capacity dropped to a revised reading of 69, slightly weaker than first reported.

Production in the manufacturing sector fell 1 percent in May. That was down from a revised drop of 0.6 percent in April, double what the Fed initially estimated. Output in mining fell 2.1 percent in May, down from a 3.2 percent decline the previous month. Production at utilities fell 1.4 percent in May, erasing a 0.7 percent increase in April.

Production of autos and parts plunged 7.9 percent, following a 1.2 percent decline in April. Machinery production dropped 3.4 percent, after a 2.5 percent decline. Those categories figured prominently in manufacturing's weakness in May.

The pullbacks factored into a drop in the operating rate at factories, which fell to 65 percent in May, the lowest on records dating to 1948. The previous low was set in April.

Production of appliances, furniture and carpeting fell 1.1 percent, partly reversing a 1.5 percent increase in April. Production of home electronics declined 1.9 percent, following a 1.4 percent decline in the previous month.