US factory production declined 0.4 pct in May

[June 16, 2012]  WASHINGTON (AP) -- U.S. factories produced less in May than April, as automakers cut back on output for the first time in six months. The report indicates that manufacturing, a key driver of the economic growth, is slowing.

The Federal Reserve said Friday that factory output declined 0.4 percent last month, after increasing 0.7 percent in April. Auto production fell 1.5 percent, the first drop since November.

Overall industrial production, which includes mines and utilities, dipped 0.1 percent, after a solid 1 percent rise in April. Both mines and utilities increased production.

The production of computers, machinery, and aircraft all declined. The output of appliances also fell, while home electronics was unchanged from April.

The report "is another illustration of how rapidly the economy has lost momentum after a very strong start to the year," said Paul Ashworth, an economist at Capital Economics, in a note to clients.

Automakers ramped up output over the winter, boosting overall factory production. Auto production jumped at an annual rate of 41 percent in the first three months of the year. Manufacturing, meanwhile, rose nearly 10 percent on an annual basis in the same period.

Car sales rose sharply earlier this year but slowed in May.

Ashworth noted that average manufacturing output rose in the past three months at only a 2.4 percent annual rate.

He blamed the European financial crisis and slower growth in China, India and other emerging markets for hurting U.S. exports of factory goods.

Separately, a survey of manufacturers showed that factory activity in the New York region grew much more slowly in June than in May. The New York Federal Reserve Bank reported a reading of 2.3 for its June Empire State index, sharply lower than its 17.1 reading in May. That means factories barely expanded this month. A reading below zero indicated contraction.

A measure of new orders in the Empire State survey also fell.

Economists were disappointed by the drop in the regional survey.

"We had expected some weakness in the report ... but not to this degree," Joseph LaVorgna, an economist at Deutsche Bank, said in a note to clients.

The economy has slumped this spring after a promising winter. Hiring has sputtered and confidence has fallen. Consumers are spending less, which has slowed factory production.

Retail sales dipped in May for the second straight month, the government said Wednesday. It was the first back-to-back drop in two years.

Orders from businesses for machinery, computers and other capital equipment fell in April and March, according to a separate government report released earlier this month.

And the Institute for Supply Management, a trade group of purchasing managers, said manufacturing activity grew more slowly in May. Companies kept hiring, but not as quickly as in April.

Factories have been adding jobs at a healthy pace in the past two of years. But the sector isn't large enough to carry the whole economy.

Manufacturers added 12,000 jobs last month, the eighth straight gain. But overall, the economy generated only 69,000 jobs in May, the third straight month of sluggish hiring.

The economy grew at an annual rate of 1.9 percent in the January-March quarter. That's slower than the 3 percent growth in the October-December quarter.

[Associated Press; By CHRISTOPHER S. RUGABER]

Copyright 2012 The Associated Press. All rights reserved. This material may not be published, broadcast, rewritten or redistributed.