U.S. factory output flat in May after strong April gain
AI-linked capital spending kept chips and computer gear growing even as overall U.S. factory output sat still in May, revealing a sharply split manufacturing picture.
U.S. factories hit pause in May even as a handful of technology-heavy industries kept climbing, underscoring how the manufacturing economy is being pulled in two directions. The Federal Reserve said industrial production rose 0.1% after a 0.9% increase in April, while manufacturing output was unchanged after a 0.7% gain the previous month. Total industrial production stood 1.7% above its year-earlier level, and capacity utilization inched up to 76.2%, still 3.2 percentage points below its long-run average.
The strongest gains were concentrated in the parts of manufacturing most exposed to artificial intelligence and data-center investment. Output of computer and electronic products rose 0.9% in May and was up 10.3% from a year earlier. Production of semiconductors and related electronic components climbed 2.4% on the month after a 2.8% increase in April, and was 14.4% above May 2025. Electrical equipment, appliances and components gained 0.5%, while communications equipment rose 0.7%. Durable goods output as a whole increased 0.8%, and motor vehicles and parts advanced 1.2% after rebounding 3.3% in April.
That strength, however, masked weakness elsewhere. Nondurable goods output fell 0.9% in May, showing that the factory sector was not moving in lockstep. A New York Fed survey pointed to additional strain in June, with delivery times at factories in New York state lengthening further and supply availability sinking to a four-year low. The picture suggests manufacturers are navigating a mix of pressures, from tariffs and a recent oil price shock to shortages and price uncertainty tied to the war in the Middle East.
Business spending on equipment and technology is helping offset some of that drag, and tax incentives for capital investment are also supporting the sector. Economists had expected manufacturing output to rise 0.2% in May, after a previously reported 0.6% increase in April, so the flat reading came in below forecasts. With manufacturing accounting for 9.4% of the U.S. economy, the May report points to an industrial base that is no longer moving as one: older lines remain weak, while chipmaking and related technology supply chains continue to benefit from a wave of AI-driven capital spending.
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