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Why Industrial Production Figures Dipped in May

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May industrial production down 0.1%

The Federal Reserve released the May US industrial production report on June 15. The report indicated that industrial production fell 0.1% in May as compared to growth of 0.9% in April. It was the first decline in five months.

The industrial production index tracks activity in the manufacturing (XLI), gas and utilities (XLU), and mining (XME) and electric sectors. Trends in industrial production can offer insight into upcoming changes in the business cycle.

The economic impact of industrial production

Industrial production has been increasing at a steady pace since the beginning of 2018 and recorded its highest level in April. Industrial production has increased at an annual rate of 3.5% this year, indicating continued growth in the manufacturing sector. Rising industrial production is a strong indication that the US economy is moving in the right direction, but the recently reintroduced tariffs could hit some industries in the US. The tariffs haven’t had a significant impact to date, but this could change down the road.

What drove industrial production lower in May?

As per the latest report, the reduction in industrial production was because of a major fire at an ancillary part manufacturer in Michigan, which disrupted automaker production across the country. Auto production fell 6.5% in May, which is the largest monthly decline since 2011. If we exclude this slide in the auto sector, industrial production rose 0.3% in May despite the 0.2% decline in the core manufacturing sector, which excludes auto. The mining (PICK) sector reported a fourth consecutive monthly gain in production thanks to the increased rig count (USO). The utilities sector also posted a healthy monthly production gain of 1.0% as hotter-than-usual May temperatures drove demand for electricity.

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