U.S. industrial production drops in May on sharp decline in manufacturing production

U.S. industrial production came in below expectations in May, mainly due to a sharp decline in manufacturing production. In all, the industrial production dropped 0.1 percent sequentially and manufacturing IP fell 0.7 percent sequentially. The press release linked the large decline in manufacturing production to a fall of truck assemblies by a major fire at a parts supplier. Stripping motor vehicles and parts, the fall in manufacturing production was more modest.

Utilities production rose 1.1 percent sequentially, and mining production remained solid with growth of 1.8 percent sequentially, aiding partially counter the unexpected fall in the manufacturing sector. Overall, this morning’s report was weaker than expected. The destruction of truck assemblies indicates towards a fall in inventory accumulation this quarter.

The sharp fall in manufacturing production was driven by vehicle assemblies, which dropped 6.5 percent. Stripping this category, production fell 0.2 percent, in the midst of a fall in machinery production and zero growth in computers & electronics production. Utilities production, though solid at the headline level, saw volatility in subcategories.

Total utilities production was widely consistent with what was expected, leaving the PCE tracking unchanged.

“The sharp fall in motor vehicle assemblies dragged our inventories tracking estimate lower. In all, our Q2 GDP tracking ended one-tenth lower, at 3.6 percent, after rounding”, stated Barclays in a research report.

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