High-tech Silver lining for otherwise cloudy manufacturing sector

Wells Fargo Research Team Wells Fargo

Summary

The May industrial production report was a bit of a snoozer. What you need to know: manufacturing activity continued to tread water with tariff policy still weighing on activity rather than spurring it.

Utilities pulls down overall output

So far, 2025 has not been a stellar year for American industry. Industrial production fell 0.2% in May, the third decline in the first five months of the year. On a year-over-year basis, industrial production is up just 0.6%.

Utilities output fell for the third time in four months. Blame the 2.9% drop in May for the headline miss (chart). Mining output was up 0.1%. These two categories together comprise about a quarter of overall production.

The largest category is manufacturing, where output grew 0.1% in May, retracing just a fraction of last month's 0.5% decline. The big gainer in terms of manufacturing output was motor vehicles & parts, where output rose 4.9%. That offset falling production in other manufacturing durables categories such as fabricated metals and machinery. Non-durable manufacturing picked up, but only modestly—textiles, apparel and paper all saw output expand in May. The gain in autos also ultimately comes off a drop in April and likely more so reflects monthly noise at this point rather than a tariff-induced revival. Over the past year, auto production is up less than 1%.

High-tech related manufacturing has been the area to watch in an otherwise dull sector. As seen in the nearby chart, growth in manufacturing of computers, electrical equipment and semiconductors has far outpaced broader manufacturing. In May, growth in these components was fairly more muted, but together these selected industries rose 0.4%, continuing to outpace broader manufacturing.

Continued uncertainty around where trade policy will ultimately land is preventing many businesses from taking on new capital expenditures, unsure of the policy and underlying demand environment. We expect manufacturing to continue to tread water in the months ahead.

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Wells Fargo Research Team

Wells Fargo

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