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Production at U.S. factories declined in June for a second month, restrained by higher inventories and a softer economic outlook.
The 0.5% decrease in manufacturing output matched the downwardly revised drop in May, Federal Reserve data showed July 15. Total industrial production, which also includes mining and utility output, fell 0.2% last month, the first decline this year.
A second month of sluggish factory output underscores the impact of a buildup in inventories at the same time higher inflation risk cooling sales and household spending gravitates toward services. A slowdown in orders growth was evident in the latest manufacturing surveys.
The Federal Reserve Bank of New York’s gauge of manufacturing activity in the state unexpectedly expanded in July for the first time in three months. Still, the report July 15 showed a measure of the industry outlook deteriorated sharply to a more than 21-year low.
Meanwhile, a separate report showed retail sales in June topped estimates, suggesting spending is holding up in the face of faster inflation.
The drop in June manufacturing output reflected a 0.7% decline in production of consumer goods, including durables and nondurables, the Fed’s report showed. Production of business equipment barely increased after falling the previous month, while the output of construction and business supplies eased in June.
Motor vehicle output slipped 1.5%, the second straight decline. Excluding autos, factory production decreased 0.5%.
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Recent survey-based data indicate more moderate growth in manufacturing. The Institute for Supply Management’s new orders gauge pulled back in June to its lowest level since May 2020, when the economy was digging its way out of the pandemic-induced recession.
The Fed’s report also showed capacity utilization at factories decreased to a four-month low of 79.3% from 79.8%.
Aside from manufacturing, utility output fell 1.4% while mining increased 1.7%. Oil and gas well drilling climbed 4.3%.
— With assistance from Chris Middleton.