WASHINGTON: Production at U.S. factories increased more than expected in May as motor vehicle output rebounded, but shortages of raw materials and labor continue to cast a shadow over the manufacturing industry.
Manufacturing output accelerated 0.9% last month after dipping 0.1% in April, the Federal Reserve said on Tuesday.
Economists polled by Reuters had forecast manufacturing output increasing 0.6% in May. Manufacturing, which accounts for 11.9% of the U.S. economy, is being underpinned by massive fiscal stimulus, low interest rates and continued strong demand for goods even as spending is shifting towards services amid a vastly improved public health situation.
But robust demand is straining the supply chain, with shortages of raw materials and labor across the industry.
The automobile industry has been hit by a global shortage of semiconductors, which has forced some automakers to cut production. Hyundai Motor USA said on Monday it would suspend production at its Montgomery plant in Alabama for a week because of the chip crunch and will “will continue to take necessary measures to optimize production.”
Volkswagen said last week it expected the supply squeeze to ease in the third quarter, though it saw the bottlenecks continuing in the long term.
That suggests the 6.7% increase in production at auto plants last month was likely temporary. Motor vehicle assemblies jumped about 1 million units to an annualized rate of 9.9 million units last month, but remained more than 1 million units below their average level in the second half of 2020.
Excluding autos, manufacturing output rose 0.5% last month.
The rebound in manufacturing output combined with a 1.2% increase in mining and a 0.2% gain in utilities to boost industrial production by 0.8% last month. That followed a 0.1% rise in April.
Capacity utilization for the manufacturing sector, a measure of how fully firms are using their resources, rose 0.7 percentage point to 75.6%. Overall capacity use for the industrial sector was up 0.6 percentage point to 75.2%. It is 4.4 percentage points below its 1972-2020 average.
Officials at the U.S. central bank tend to look at capacity use measures for signals of how much “slack” remains in the economy – how far growth has room to run before it becomes inflationary.