RTTNews - Industrial production continued to decrease in the month of May, according to a report released by the Federal Reserve on Tuesday, with production falling by a little more than economists had been anticipating.

The report showed that industrial production fell 1.1 percent in May following a revised 0.7 percent decrease in April. Economists had been expecting production to fall 1.0 percent compared to the 0.5 percent drop originally reported for the previous month.

With the bigger than expected decrease, industrial production fell for the seventh consecutive month and is down 13.4 percent compared to the same month a year ago.

The Federal Reserve said that manufacturing output fell 1.0 percent in May, reflecting broad-based declines across industries. The output of mines dropped 2.1 percent and the output of utilities fell 1.4 percent.

A 7.9 percent decrease in the production of motor vehicles and parts contributed to the bigger than expected drop in production. The steep drop was due in large part to plant shutdowns by Chrysler and General Motors.

Peter Boockvar, equity strategist at Miller Tabak said, It is this backdrop that provides fuel for the expectations on the part of some that a large snapback in auto production will occur in the 2nd half of '09.

The hoped for transition from inventory destocking to restocking will be most evident in auto's, Boockvar added.

Additionally, the report showed that capacity utilization fell to 68.3 percent in May from a revised 69.0 percent in the previous month. The capacity utilization rate had been expected to slip to 68.4 percent from the 69.1 percent originally reported for April.

Capacity utilization also fell for the seventh straight month and is at its lowest level since the data began being kept in 1967.

In other economic, the Commerce Department released a report showing a bigger than expected increase in housing starts in the month of May. The strong growth was largely due to a jump in construction of multi-family homes.

A separate report from the Labor Department showed a smaller than expected increase in wholesale prices in the month of May, with a notable decline in foods prices nearly offsetting a jump in energy prices.

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