US industrial production dips in May as auto assembly lines ground to a halt

US industrial production fell unexpectedly last month as manufacturing output more than gave back April's gains as motor vehicle assembly lines ground to a halt.

Total industrial output dipped by 0.1% month-on-month in May, according to the Federal Reserve, falling shy of economists' forecasts for an increase of 0.3%.

By industry groups, manufacturing output was weakest, falling by 0.7% month-on-month, offset by increases of 1.8% and 1.1% in Mining and Utilities production, respectively.

Production of motor vehicles and parts shrank by 6.5%, together with decreases of greater than 1% in the output of primary metals, electrical equipment, appliances and components, the Fed said.

To take note of, capacity utilisation within manufacturing fell by 0.6 percentage points to 75.3%, dragging it three percentage points below its long-run average.

Mining on the other hand saw its fourth consecutive monthly expansion, putting it ahead by 12% on a year-on-year basis, reflecting continued gains in Oil&Gas output.

From an industry group perspective, production of consumer goods and of business equipment were weakest, registering declines of 1.0% and 1.1% each.

Even excluding those categories impacted by the drop in the output of motor vehicles, those two categories saw falls of 0.4% and 0.3%, respectively.

Total capacity in use in American industry declined by 0.2 percentage points to 77.9% (consensus: 78.2%).

"The strong survey evidence suggests that the drop in manufacturing output in May was a blip, but the tariffs imposed on Chinese imports, if reciprocated, could weigh on the factory sector later this year," wrote Michael Pearce at Capital Economics.

"[...] That action covers just 1.1% of total US imports, so will not on its own have a major macroeconomic impact. But the real worry is that it heralds a new era of much greater protectionism, which will weigh on the factory sector and add to inflationary pressures. The softwood lumber, steel and aluminium tariffs already in place have pushed up costs for manufacturers, and have so far done little to boost output."