Minimal factory growth in May highlights sector fragility
U.S. factory production showed only a marginal increase in May, reflecting a mixed picture for the manufacturing sector as it grapples with shifting trade policies and global economic uncertainty. According to the Federal Reserve, manufacturing output edged up just 0.1%, falling short of the 0.2% rebound economists had anticipated. This follows a downwardly revised 0.5% decline in April.
On a year-over-year basis, manufacturing output rose 0.5%, but the overall industrial sector experienced a 0.2% decline in May. The sector continues to operate below its historical capacity, with industrial capacity utilization slipping to 77.4%, 2.2 percentage points below its long-run average.
Tariffs cloud the outlook for manufacturers
President Donald Trump’s recent decision to double tariffs on steel and aluminum to 50%, along with a 25% duty on motor vehicles and parts, is placing additional strain on the manufacturing sector. Manufacturers, which rely heavily on imported raw materials, are facing rising costs and supply chain disruptions, undermining growth prospects.
While Trump defends the tariffs as a necessary move to restore the domestic industrial base, economists argue that short-term gains are unlikely, citing persistent high labor and production costs as structural challenges that tariffs alone cannot address.
Auto and aerospace gains offset by broader weakness
The modest overall manufacturing increase was largely driven by a 4.9% surge in motor vehicle and parts production, rebounding from a 2.3% drop in April. Aerospace and miscellaneous transportation equipment output also grew by 1.1%.
However, these gains were counterbalanced by declines in key areas. Fabricated metal products, machinery, and nonmetallic mineral products all saw output fall by at least 1.0%. Nondurable goods production dropped 0.2%, dragged down by declines in food, beverage and tobacco, petroleum and coal, and printing industries.
Consumer nondurable goods output fell sharply by 0.8%, including a 3.2% plunge in energy-related goods. Mining output ticked up slightly by 0.1%, while utility production dropped 2.9%, reflecting a 3.6% decline in electricity output, which offset a 2.7% rise in natural gas utility activity.
Capacity use and productivity remain under pressure
Overall capacity utilization in the manufacturing sector was unchanged at 76.7%, still 1.5 percentage points below its long-term average. These numbers suggest ongoing underperformance in the sector, raising concerns about the broader health of the industrial economy.
With trade policy uncertainty persisting and tariff impacts deepening, analysts warn that sustained recovery in U.S. manufacturing may be elusive without structural changes in production efficiency and supply chain resilience.
