By Lucia Mutikani
WASHINGTON, May 15 (Reuters) - U.S. factory production posted its largest increase in 14 months in April, driven by motor vehicles and demand for technology goods amid an artificial intelligence spending boom, but supply disruptions from the war with Iran cast a shadow over the manufacturing sector.
Those constraints were flagged by a survey from the New York Federal Reserve on Friday showing delivery performance by suppliers in New York state deteriorated in May. The U.S.-Israeli
conflict with Iran has disrupted shipping in the Strait of Hormuz, raising energy prices, as well as straining global supply chains and causing shortages of a wide range of goods, including fertilizers, aluminum and consumer products.
Producer prices increased at their fastest pace in four years in April. Oil prices jumped on Friday after comments from President Donald Trump and Iran's foreign minister dented hopes of a deal to end ship attacks and seizures around the Strait.
"Overall, firmer demand and continued expansion in output point to some resilience in the manufacturing sector," said Michael Gapen, chief economist at Morgan Stanley. "However, uncertainty around supply and prices leaves risks to the near-term outlook tilted to the downside."
Manufacturing output increased 0.6% last month, the largest rise since February 2025, after an upwardly revised 0.1% gain in March, the Federal Reserve said. Economists polled by Reuters had forecast production at factories rebounding 0.2% after a previously reported 0.1% dip in March. Factory production advanced 1.3% on a year-over-year basis in April.
Motor vehicle and parts output jumped 3.7%. Production at high-technology industries increased 1.0% after rising 0.5% in March. Output was boosted by computers and peripheral equipment, which increased 1.5% for a second straight month. Production of semiconductors and related electronic components rose 1.0% while that of communications equipment increased 0.6%.
Businesses are rapidly adopting AI, investing billions of dollars, and helping to prop up manufacturing, which accounts for 9.4% of the economy. AI spending contributed significantly to the economy's 2.0% annualized growth pace in the first quarter.
Excluding high-technology industries and motor vehicles, manufacturing rose 0.3% in April after a similar gain in March. Durable goods production shot up 1.2% last month.
But output of nondurable goods eased 0.1%, with chemicals falling 0.9%. Production of plastics and rubber products also dropped 0.9%. Output of petroleum and coal products, however, increased 1.0% for a second straight month. Production also rose for food, beverage and tobacco products.
Some of the increase in manufacturing production could be related to businesses front-loading orders to avoid potential shortages and higher prices from the Middle East conflict.
SUPPLIER DELIVERY PERFORMANCE DETERIORATING
The New York Fed's Empire State Manufacturing Survey showed its measure of general business conditions increased nine points to 19.6 in May, the highest level in more than four years, with new orders and shipments rising considerably for the second straight month. But the survey's measure of delivery time hit a four-year high while its gauge of supply availability remained negative, which it said suggested "delivery times were much longer and supply availability worsened."
U.S. stocks were trading lower as inflation worries intensified. Longer-dated Treasury yields climbed to their highest levels in a year. The dollar rose against a basket of currencies. Higher oil prices and the accompanying inflation have led financial markets to expect the U.S. central bank would keep its benchmark overnight interest rate in the 3.50%-3.75% range into next year.
Elevated interest rates could offset some of the boost to manufacturing from tax cuts. Manufacturing was hammered last year by Trump's sweeping import tariffs, though the AI spending spree cushioned some of the drag from higher duties.
Mining output dipped 0.1% last month after declining 1.6% in March, the Fed report showed. Energy production rebounded 1.0%, though oil and gas well drilling decreased for a second consecutive month. The Fed's Beige Book report last month noted "many producers remained cautious about increasing drilling due to uncertainty about the persistence of higher prices."
"That second consecutive decline, despite higher oil prices, should serve as a reality check to anyone hoping that a surge in U.S. production will help to offset supply losses from the Middle East," said Stephen Brown, chief North America economist at Capital Economics.
Utilities production increased 1.9%, with gains in both electric and natural gas. Utilities output fell 1.4% in March.
Overall industrial production advanced 0.7% after an upwardly revised 0.3% drop in March. Industrial output was previously reported to have declined 0.5%. It increased 1.4% on a year-over-year basis in April.
Capacity utilization for the industrial sector, a measure of how fully firms are using their resources, climbed to 76.1% from 75.7% in March. It is 3.3 percentage points below its 1972–2025 average. The operating rate for the manufacturing sector increased 0.4 percentage point to 75.8%. It is 2.4 percentage points below its long-run average.
(Reporting by Lucia Mutikani; Editing by Chizu Nomiyama and Nick Zieminski)
