U.S. factory output rose for the 11th consecutive month in May, mainly due to increases in manufacturing and utilities, strengthening the industrial sector’s position at the forefront of the economic recovery.

Industrial production in the United States increased 1.2 percent in May, following a 0.7 percent increase in April, according to the U.S. Federal Reserve‘s latest industrial sector report. This marked the 11th straight month of growth in factory output and reinforced the role of the industrial sector as a key driver of the broader economic recovery.

The May increase marked the highest monthly reading for the industrial sector since August 2009, reflecting a stronger rebound for the sector than the general economy.

Released yesterday, the Fed report indicates that much of the May production growth was due to a boost in manufacturing output, which increased 0.9 percent following a 0.9 percent gain in April and a 1.2 percent increase in March. Manufacturing output remained 7.9 percent above its prior-year level. Utilities output climbed 4.8 percent in May thanks to unusually warm temperatures that increased air conditioner usage, while mining output edged down 0.2 percent.

At 103.5 percent of the 2002 average, total industrial production in May rose to 7.6 percent above its 2009 level and, according to Bloomberg News, proved that “manufacturers are weathering the effects of the European debt crisis.”

“The industrial sector has been a key driver of the economic recovery that began last summer, reflecting both steadily rising consumer demand for goods and inventory levels that had grown so lean during the recession that they needed to be rebuilt,” the Washington Post reports.

According to the Fed, durable goods production jumped 2.6 percent in May, led by automotive products and home electronics. Non-durable goods production rose 0.8 percent, with increases in all the major categories except chemical products, which fell 1.1 percent. Output of business equipment increased 1.3 percent for the month, while materials output grew 1.3 percent.

“Fifteen of the 20 major manufacturing industries experienced growth last month,” Daniel J. Meckstroth, chief economist for the Manufacturers Alliance/MAPI, wrote in an analysis of the Fed report. “Furthermore, many of the industries that posted the strongest gains were some of those severely hurt by the recession that ended in June 2009, for example, steel, motor vehicles, wood products, and machinery industries.”

Meanwhile, capacity utilization, which measures how much of the industrial sector’s production capabilities are being used, rose 1 percentage point to reach 74.7 percent, 6.2 points above the rate for May 2009 but still 5.9 points below the average from 1972 to 2009.

“The Fed is watching this report carefully to gauge whether any inflation pressures might be building, which could cause the central bank to rethink its pledge to keep interest rates ultra-low for an extended period,” Reuters reports. “With capacity usage still below average, Wednesday’s report suggests little pressure on the Fed to rescind that vow.”

According to the Associated Press, businesses are increasingly restocking their supplies after cutting down inventories during the economic downturn, and, despite a challenging employment market and tight credit conditions, consumer demand is on the rise.

“While an inventory swing from destocking to restocking is certainly a key driver in the industrial rebound, the breadth of the rebound is impressive and creates self-reinforcing demand for materials and equipment across the whole manufacturing sector,” Meckstroth added.

Regional manufacturing centers are also performing better. According to the Federal Reserve Bank of New York’s Empire State Manufacturing Survey this week, the business conditions index for the region edged up to 19.6 in June from the May reading of 19.1, its 11th consecutive month of expansion. The new orders index also rose to 17.5 in June, and the shipments index increased to 19.7.

Earlier

Factory Production and Business Inventories Up in April

U.S. Factory Output Edges Up in March

Resources

Industrial Production and Capacity Utilization
U.S. Federal Reserve, June 16, 2010

Industrial Production in U.S. Increased 1.2% in May
by Timothy R. Homan
Bloomberg News, June 16, 2010

Industrial Production Rises, Better than Expected
by Neil Irwin
The Washington Post, June 16, 2010

MAPI Analysis on Industrial Production: ‘Breadth of Rebound’ Impressive
by Daniel J. Meckstroth
The Manufacturers Alliance/MAPI, June 16, 2010

U.S. Industrial Output Up 1.2 Percent in May
by Emily Kaiser
Reuters, June 16, 2010

Industrial Production Rises 1.2 Pct. in May
by Daniel Wagner
The Associated Press, June 16, 2010

Empire State Manufacturing Survey
Federal Reserve Bank of New York, June 15, 2010