Industrial Production Unexpectedly Drops in June

WASHINGTON – Output at U.S. factories, mines and utilities fell unexpectedly in June, recording its largest drop in more than a year, the Federal Reserve (search) reported Thursday.

The Fed said U.S. industrial production (search) fell 0.3 percent in June after a downwardly revised 0.9 percent May increase. Wall Street had expected the June reading to be flat.

The overall industrial production drop was the largest since April 2003, when it fell 0.6 percent.

The report suggested a possible cooling of the U.S. factory sector after several months of robust growth.

"It does show the economy is moving in fits and starts. I think there's still a lot of forward momentum," said Ken Mayland, president of Clearview Economics LLC (search) in Ohio.

Manufacturing output, which makes up four-fifths of the industrial production report, fell 0.1 percent in June, its first fall in 13 months. Analysts noted a 2.5 percent drop in motor vehicles and parts production as a sign of weakness.

Motor vehicle assemblies also slipped in June to 11.38 million units from May's 11.83 million units.

"It seems to me that across a lot of categories that customers seem to be responding negatively to price increases," Mayland said. "They are pulling back and that's causing a bit of sales and production adjustments."

Utilities output decreased 2.3 percent, because of cooler-than-normal temperatures. Mining production was up a modest 0.1 percent.

Companies also operated at a lower rate in June, at 77.2 percent of full capacity, down from a revised 77.6 percent capacity use rate in May.

Analysts had expected a 77.7 percent capacity use rate for June.