Production of consumer goods was soft again, falling 0.1% on the month after dropping 0.7% in April, as production of foods, tobacco products, paper and consumer energy products fell. Business equipment production increased 0.2% following a 0.3% decline in April, led by increases in electrical instruments and medium and heavy duty trucks.
It is clear that industrial production is weakening, as production was only 1.6% higher than a year ago in May, the lowest rate of growth since February 2010 (chart 1). Although utility production has been very weak lately, the much larger manufacturing component also remains subdued (chart 2). In addition, capacity utilization, while much improved since the depths of the recession, appears to be leveling off at levels not much higher than the troughs of past business cycles (chart 3). This report, along with the softness in core producer inflation, will allow the Fed to continue its accommodative monetary stance with little concern about inflation for the time being.