WASHINGTON (Reuters) - 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 (DE:VOWG_p) 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.