Recession Watch: Manufacturing Output Unexpectedly Declines

US President Joe Biden walks to Marine One on the South Lawn of the White House in Washington, DC, on June 17, 2022. - The Bidens are spending the weekend in Rehoboth Beach, Delaware. (Photo by MANDEL NGAN / AFP) (Photo by MANDEL NGAN/AFP via Getty Images)
Photo by MANDEL NGAN/AFP via Getty Images

American manufacturing output unexpectedly contracted in May, data from the Federal Reserve showed Friday, confirming indications of decline seen in regional Fed reports over the last month.

Manufacturing output declined by 0.1 percent in May, the Fed said in its monthly report on industrial output. Economists had been expected manufacturing output to climb 0.4 percent. Despite the decline, the index is still up 4.8 percent over the past 12 months.

Nondurable good manufacturing rose 0.1 percent, weaker than many analysts expected. Durable goods manufacturing fell 0.2 percent. Excluding cars and trucks, durable goods manufacturing fell 0.4 percent. A category of “other manufacturing,” which includes logging and publishing, fell 0.2 percent.

Manufacturing outside of energy-related businesses fell 0.2 percent while energy-related manufacturing rose 1.4 percent, the latest indication that the energy sector is now a drag on the rest of the economy. Retail sales data for May indicated that while gas station sales were up sharply, sales in many other retail outlets were down.
Consumer goods manufacturing excluding motor vehicles and parts fell 0.3 percent. Business supplies manufacturing was flat for the month. Business equipment manufacturing rose one-tenth of a percentage point and construction supplies rose two-tenths.

Home electronics manufacturing dropped 0.2 percent. Appliance and furniture manufacturing was down 2.5 percent. Food, beverage, and tobacco was down 0.6 percent.

Clothing manufacturing gained one percent and automaking gained 1.1 percent.

The headline figure for industrial production rose 0.2 percent, weaker than the 0.5 percent expected. This was boosted by a 1.3 percent gain in mining output, which includes oil and natural gas drilling. Mining output is up 9 percent over the past year as high prices of oil and natural gas have led to more production, although not enough to keep up with rising demand.

Utilities output rose one percent in May.

Capacity utilization for manufacturing slipped in May to 79.1 percent, 1.0 percentage point above its long-run average. The operating rate for mining was 81.5 percent, which the Fed said is 4.4 percentage points below its long-run average.  Overall industrial capacity utilization edged up to 79.0 percent, 0.5 percentage point below its long-run average and missing expectations for a move up to 79.3 percent.

The surveys of manufacturing from the Federal Reserve banks of New York and Richmond in May indicated that manufacturing was contracting in their region in May. This week the New York Fed said its index remained in contraction territory in June (the Richmond Fed will not report until later this month). The Philadelphia Fed’s reading was positive in mid-May but turned negative in June.

While manufacturing makes up just a small part of the economy, it is considered a bellwether. The unexpected decline in manufacturing in May, and signs that it is broadening in June, are likely to fuel worries that the economy may be closer to a recession than previously thought.

Over half of the American public believe we are already in a recession. The economy contracted in the first quarter and appears to be on the verge of a second consecutive quarterly contraction. While many people consider two consecutive quarters of negative growth a recession, the official designation is the province of an unelected committee of economists at the National Bureau of Economic Research, a private non-profit research outfit almost completely unknown to the public.


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