Industrial Production Dips In May

Softness in manufacturing leads to unexpected decline. Capacity utilization also slips.

Weakness in the manufacturing sector led to an unexpected falloff in industrial production in May,

The Federal Reserve reported Thursday that output at the nation's factories, mines and utilities dropped by 0.1 percent last month following an increase of 0.8 percent in April.

The 0.1 percent drop in industrial production marked the first drop since a 0.1 percent fall in January. Economists believe that manufacturing, which had finally started to recover from the 2001 recession, will slow in coming months as overall economic growth slows. Manufacturing makes up about 80 percent of total U.S. industrial production.

Manufacturing capacity utilization dipped 0.3 percentage point to 80.5% but was still above its long-run average.

The weakness last month reflected a slowdown of autos and auto parts as the U.S. auto industry continued to struggle with higher gas prices that have eaten away at demand for sport utility vehicles.

Production of autos and auto parts fell by 1.3 percent last month following a smaller 0.2 percent drop in April. Output of manufactured durables goods - items designed to last three years or longer - fell 0.2% in May after a 1.0% gain in April. Nondurables production rose 0.1% last month, on the heels of a 0.3% increase in April.

In other economic news, the Labor Department reported Thursday that the number of newly laid off workers filing for unemployment benefits dropped to 295,000 last week, the lowest level in nearly four months.

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