U.S. industrial production rebounds in May, utilization stays low

U.S. industrial production grew 1.4 percent in the month of May as most states took measure to ease stay-at-home restrictions, recovering a small portion of its 16.5 percent cumulative fall in March and April. Nevertheless, the numbers indicate that activity will have an even steeper hill to climb, with the April estimate revised down 1.3 percentage point to show a fall of 12.5 percent month-on-month, said Barclays in a research report.

May’s rise was slightly below consensus expectations of 3 percent. Production rises last month were mainly driven by a rise in the manufacturing category, which rose 3.8 percent as manufacturers started to increase production toward pre-COVID levels. This rise was partly countered by falls in the utilities component, which was held back by May’s milder-than-normal temperatures; and by mining, which is slowly reacting to the sharp net fall in oil prices year to date.

May’s rise was seen in final products, which advanced from partial rebounds in consumer goods and business equipment. These gains were partly countered by upstream falls, with production of materials fell 0.8 percent sequentially because of softness in the energy components.

With May’s partial recovery, producers are still operating at a fraction of pre-COVID rates. In all, capacity utilization in May recovered only 0.8 percentage point to 64.8 percent, still about 12 percentage point below where it had stood in February.

The mining sector countered gains elsewhere. Production in the mining component dropped 6.9 percent sequentially in May, adding to a cumulative fall of 9.4 percent sequentially in the preceding months.

“The decline was enough to subtract about 1.1pp from the overall gain in IP.  These declines are likely a delayed reaction to the sharp net drop in oil prices that took hold in January and February as COVID-19 disruptions began to weigh on global demand. The delayed reaction likely reflects, in part, the gradual expiration of price hedges that had insulated producers from declines in earlier months”, said Barclays in a research report.