U.S. industrial production fell 0.2% in May, the U.S. Federal Reserve announced Tuesday, its third drop in the past four months.

Economists surveyed by Bloomberg News had expected industrial production to rise 0.1% in May. Industrial production fell 0.7% in April.

Further, manufacturing output was unchanged in May, the Fed said, while utilities output declined 1.8%, and mine output increased 0.1%. The Fed added that factory output was boosted by a small pickup in the index for motor vehicles and parts; the end in late May of a strike at a parts producer had little effect on vehicle output for the month.

Also, capacity utilization declined to 79.4% in May from 79.6% in 79.7 in April. Economists surveyed by Bloomberg News had expected capacity utilization to total 79.7 in May. The May utilization rate is 1.6 percentage points below its average for 1972-2007 and is at its lowest level since November 2004. Capacity utilization totaled 80.3% in March and 80.9% one year ago, in May 2007.

U.S. economy operating well below capacity

Economist David H. Wang said U.S. industrial production continues to operate well below capacity. "We are continuing to see a downward path of industrial production and this is not a good sign. Industrial production has declined for about one year, and this will weigh on commercial activity. It's also a major job loss area," Wang said. "The U.S. economy is complex and multi-faceted but it's hard for GDP to grow without industrial production increasing."

U.S. industrial production plunged 0.7% in April 2008, the U.S. Federal Reserve announced Thursday, as a spectrum-wide contraction took place in the nation's factories.

Economists surveyed by Bloomberg News had expected industrial production to decline 0.3% in April 2008.

Further, factory output plummeted 0.8% - - the largest drop in factory output since September 2005, a month that reflected the abnormal, irregular factory output reduction caused by Hurricane Katrina in the late summer of 2005. Excluding autos and auto parts, factory output declined 0.4%.

Also, capacity utilization increase declined to 79.7% in April 2008 from 80.4% in March 2008. Economists surveyed by Bloomberg News had expected capacity utilization to total 80.1% in April 2008. Capacity utilization totaled 80.3% in February 2008.

Industrial output evaluation

Economist David H. Wang said the April 2008 industrial production statistic reflects a familiar theme in the current U.S. economic slowdown: a contracting factory sector.

Industrial production increased 0.1% in January 2008 for the second consecutive month, the U.S. Federal Reserve announced Friday, in a statement. The statistic was in-line with economists' consensus estimate.

Meanwhile, the December 2007 output was revised to a 0.1% increase, up from the previous estimate of 0.0%.

At 114.2% of its 2002 average, overall industrial production was 2.3% above its January 2007 level, the Fed said.

In addition, capacity utilization -- which indicates the percent of industrial resources in service -- was unchanged from the prior month's revised percentage of 81.5%. At 81.5%, capacity utilization is 0.4 percentage points above its year-ago level and 0.5 percentage points above its 1972-2007 average. Capacity utilization has averaged about 81% over the last three decades: higher utilization rates suggest upward pressure on prices is likely in the months ahead.

Industrial Production fell 0.5% in October, considerably worse than the consensus estimate of a 0.1% production gain, the U.S. Federal Reserve announced Friday. It was the largest decline in IP since January 2007. Industrial Production rose 0.2% in September.

Meanwhile, capacity utilization --- which measures the percent of plants in use --- fell to 81.7% in October from 82.2% in September. Analysts had expected a 0.1%-0.3% rise in the utilization rate.

Production at factories declined 0.4%, utility production declined 1.6%, and mining output fell 0.6%. Also telling: production of consumer durable goods dropped 0.8%.

Analysts said the October industrial production decline adds to the argument that the U.S. housing sector's woes - - the most serious housing slump in more than a decade - - are beginning to spill over into the broader economy:

"The October industrial production statistic certainly is a disappointment. Combined with lower capacity utilization, it suggests the economy is slowing, and it's something that has to concern the Fed," economist M. David Chandler told Bloggingstocks. "This puts added focus on the November and December stats. If we see industrial production slowing in those two months, Q4 will come in very, very weak, and the U.S. economy will be growing at near-stall levels."