Industrial output drops 0.2% in May

The strong dollar and lower oil prices take a toll on a key sector in the nation’s economy.

WASHINGTON — Industrial output fell in May, the sixth straight month without an increase as a strong dollar and lower oil prices continued to take a toll on a key sector in the nation’s economy.

Analysts had been expecting a small increase as oil prices have stabilized. But production declined 0.2%, the Federal Reserve said Monday.

The struggles at the nation’s factories, mines and utilities will be one of the factors that Fed policymakers are likely to consider when they meet Tuesday and Wednesday.

The officials must decide if the economy is strong enough for the first hike in the central bank’s benchmark short-term interest rate since 2006.

For the 12-month period that ended May 31, industrial production was up 1.4%. The annual pace had been 1.9% through April 30.

Gus Faucher, senior macroeconomist at PNC Financial Services group, called the report disappointing.

“Auto sales were very strong for the month,” he said. “But lackluster results in other areas held back production.

“The stronger dollar is a drag, as it makes exports from the U.S. more expensive and imports to the U.S. less expensive. And energy production continues to decline.”

The May decline was an improvement over a 0.5% drop in April that was revised down from an earlier estimate of 0.3%.

The mining sector, which includes oil and gas well drilling and servicing, improved last month. Mining production was down 0.3% in May compared with a 1.3% decrease the previous month.

But manufacturing output fell 0.2% in May, the first decline in three months despite a 1.7% increase in auto production.

Factories producing petroleum and coal products had a 1.6% drop in output in May, defense and space production fell 1.3% and food, beverage and tobacco was down 0.9%.

Capacity utilization, which measures slack in the industrial sector, declined 0.2 percentage points in May to 78.1%. The figure was 2 percentage points below its average since 1972.

Paul Sakuma Associated Press A TANKER TRUCK passes the Chevron oil refinery in Richmond, Calif. A decline in refining contributed to the 0.2% drop in industrial output in May.