Industrial production declined 0.8% in May, according to today’s report from the Federal Reserve Board. Industrial production tracks very closely with freight volume.

This is the eighth consecutive decline. May production was 2.8% below May 2000. Chemicals (-1.9%), paper (-1.4%) and electronics/computer (-1.2%) were the weakest industries. These are the industries working off the biggest inventory surpluses. They are also the industries coping with the strongest import competition. Credit part of the production cuts to the appreciation of the dollar, nearly 10% since early 2000.
Freight volume is likely holding up better than production because of the need to move both added imports and inventories being consumed.
Today’s report was no surprise after earlier inventory reports for April showed that a significant inventory surplus remained after seven months of more modest production cuts. As a result, production is very likely to drop again in June, but is expected to be recovering slowly later in the summer. This means that the peak production and freight levels of early 2000 will not be reached again until around the end of the year at the earliest.