U.S. factory output beat expectations and rose sharply in May, according to Federal Reserve data released Tuesday, as utilities production posted a big increase.
The data suggest the manufacturing sector staged something of a rebound last month, despite the Fed's decision to hold interest rates at a 23-year high to tackle inflation, which has taken a toll on the manufacturing sector.
The U.S. central bank recently dialed back the number of rate cuts it has penciled in this year from three to one, as progress against inflation stalled in the first quarter.
Industrial production rose by 0.9% in May from a month earlier, the Fed said in its latest report, significantly higher than the monthly gains seen in both March and April.
The gain was also well above market expectations of a 0.4% monthly rise, according to Briefing.com.
"Industrial and manufacturing production was much stronger than expected in May," High Frequency Economics Chief U.S. Economist Rubeela Farooqi wrote in a note to clients, adding that a Fed interest rate cut -- when it comes -- should help to support factory activity.
Among the major industry groups, manufacturing and utilities production increased by 0.9% and 1.6% respectively from April, while mining production rose by a more modest 0.3%.
"Manufacturing led May's sharp uptick in industrial production, while warmer than usual weather boosted utilities output," Oxford Economics Lead U.S. Economist Bernard Yaros wrote in a note to clients.
The sharp monthly rise in production pushed industrial production into positive territory year-on-year, with factory output increasing by 0.4% since May 2023, the Fed said.
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