Industrial production edges higher

June 15, 2026

Industrial production ticked up 0.1% in May, missing expectations, after increasing an upwardly revised 0.9% in April. Industrial production has risen 1.7% year-over-year, building on a 1.4% gain in April. 

Industry data was mixed. Manufacturing production growth was flat while mining expanded and utilities contracted.

The relief rally in financial markets in response to a deal to reopen the Strait of Hormuz is front running the reality on the ground in terms of ongoing scarcities. Some stored fuel will be released once ships are able to tap those reserves. The problem is that we have drained most of the inventories outside of the strait that were used to buffer losses.

Iran has pledged to remove mines over the next month, which is necessary to see any kind of a rapid ramp up in shipping. That will further stress already strained inventories, notably in emerging Asia. The initial fall in costs and drop-in interest rates we have seen could prove short-lived. Wells and refining production take weeks not days to ramp up.  

That is prior to assessing damages to wells shut in or subject to attack. Estimates vary from a 30-50% return of shipping traffic in one month. That is still a small fraction of global demand. 

The modest gains in production in May were driven by an increase in mining, which jumped 1.3$ after edging up only 0.2% in April. Oil and gas well drilling gained 5%, the largest increase since October 2021. That brought the yearly increase into positive territory for the first time since mid-2023. 

The challenge for the oil and gas sector is that producers need a multi-year runway on higher prices to justify the capital outlays associated with new production. Increased efficiency surrounding existing wells is more economical. The ceasefire agreement will temper further drilling.

Manufacturing production growth was flat in May after rising 0.7% in April. Durable goods chalked up an increase of 0.8% on broad-based gains. Wood products, nonmetallic mineral products, primary metals and motor vehicles and parts led the sector. Motor vehicle assemblies in May barely outpaced April but reached the highest level since last September. Light trucks and autos both expanded.  

Nondurable goods manufacturing fell 0.9% with most categories declining. Petroleum and coal products plummeted 3%, the most in one month in almost four years. Textiles and product mills fell 2.4%. Apparel and leather posted the only increase among nondurables. 

Utilities fell 0.4% after jumping 2.2% in April. Utilities added 3.1% since this time last year, the highest reading since the end of last year. Natural gas production rebounded 8.5% in May after jumping 12.7% in April when it benefitted from the squeeze on supplies. Meanwhile, electricity production fell 1.7% with a 0.6% monthly increase in prices. 

Transit equipment climbed 1.9%, now up 10.4% on the year. The reopening of the Strait of Hormuz will allow helium necessary for semiconductor production to begin flowing again, although it will take months for supply chains to unfurl. 

Business equipment continued to post solid numbers; production gained 0.6% in May and 5.7% over the past year. Information processing rose 0.2% in May and 8.7% since last year. Investment in AI continues to lead business investment.  

Defense and space equipment added 0.9% in May and 7.7% over the past year. That is the highest mark in two and a half years. Consumer goods fell 0.5%, pulled down by energy, appliances, furniture and carpeting and chemical products. 

Capacity utilization rose to 76.2%, the highest level since August of last year. Durable goods manufacturing rose, but was offset by petroleum and coal products, which hit their lowest utilization levels since the post-pandemic recovery in 2021. Semiconductors and related electronic components rose a full percentage point, reaching a level not seen since last August. Computer and office equipment came off the 15-year high reached last month. Overall utilities capacity expanded 0.2% with manufacturing capacity gaining 0.1%.

The Institute for Supply Management (ISM) manufacturing purchasing managers’ index (PMI) has been in expansionary territory for five consecutive months, suggesting that future industrial production will be to the upside. In May, the survey hit its highest level since May 2022. Inventory restocking has played a key role in supporting manufacturing gains, along with some buying ahead of future price hikes. 

The latter should worry the Federal Reserve. Hoarding creates its own reinforcing cycle of price hikes and is the exact behavior that the Fed is tasked to avert. Those efforts are unlikely to recede with the conflict in the Middle East, given the threat of a new round of tariffs in August. The administration is looking to restore the revenues lost to tariffs ruled illegal by the Supreme Court.