United States factory production unexpectedly stalled in May following several months of gains, though strong demand linked to artificial intelligence investment continued to provide support for the manufacturing sector amid tariffs and lingering effects from recent energy market disruptions.
Federal Reserve data released on Monday showed manufacturing output was unchanged in May after an upwardly revised 0.7% increase in April. Production had also risen 0.2% in March and 0.7% in February.
Industrial production ticked up 0.1%, following a 0.9% rise in April. Compared with a year earlier, total industrial output rose 1.7%.
Markets had expected factory output to increase 0.2% in May, while industrial production was expected to rise 0.3%.
According to Reuters, some economists suggested earlier increases in production reflected businesses building inventories in anticipation of shortages and higher costs associated with the Middle East conflict.
While that boost appears to have faded, rising corporate spending on artificial intelligence infrastructure and business investment incentives are helping to cushion the sector.
Manufacturing, which accounts for 9.4% of the U.S. economy, remained stronger than a year earlier, with output rising 1.4% on an annual basis in May.
The strongest gains continued to come from technology-related industries. Production of computer and electronic products increased 0.9% during the month and was 10.3% higher than a year earlier.
Semiconductors and related electronic components remained a standout performer, with output rising 2.4% in May following a 2.8% increase in April.
Production in the sector surged 14.4% from a year earlier, amid sustained demand driven by artificial intelligence-related investment.
Electrical equipment, appliances and components production rose 0.5%, while communications equipment output increased 0.7%.
The AI investment boom has emerged as an important support for the broader economy, contributing significantly to the economy's 1.6% annualised growth rate in the first quarter.
Motor vehicle and parts production also provided support, increasing 1.2% in May after rebounding 3.3% in April. Overall output of durable manufactured goods advanced 0.8%.
Additional gains were recorded across several industrial categories, including wood products, nonmetallic mineral products, primary metals, fabricated metal products, aerospace and miscellaneous transportation equipment, as well as furniture and related products.
However, those gains were largely offset by weakness in non-durable goods production, which declined 0.9%.
Output of food, beverage and tobacco products fell 0.5%, while production also declined across petroleum and coal products, chemicals, and plastics and rubber products.
Outside manufacturing, mining activity strengthened considerably. Mining production rose 1.3% in May after increasing 0.2% in April.
Energy production edged up 0.1%, supported by a 5.0% rebound in oil and gas well drilling after declines in the previous two months. However, analysts noted that lower oil prices could limit future growth in the sector.
Utilities production fell 0.4% after surging 2.2% in April.
Capacity utilisation for the industrial sector increased slightly to 76.2% from 76.1% in April. Despite the improvement, utilisation remains 3.2 percentage points below its long-term average recorded between 1972 and 2025.
Manufacturing capacity utilisation was unchanged at 75.7%, remaining 2.5 percentage points below its historical average.
Separate data released by the Federal Reserve Bank of New York painted a mixed picture for the manufacturing outlook.
The Empire State Manufacturing Survey showed its measure of general business conditions fell by roughly 14 points to 5.7 in June.
Markets had expected a reading of 14.
The survey also pointed to further deterioration in delivery performance and worsening supply availability.
At the same time, inflation concerns remained elevated among manufacturers. The survey's measure of future selling prices climbed to its highest level since 2022, suggesting businesses expect pricing pressures to persist.
The report said the results indicated that "firms widely expect to raise their prices over the next six months".
