Output at factories, mines and utilities decreased 0.1 percent last month after a revised 1 percent gain in April, the Fed reported Friday in Washington. The Thomson Reuters/University of Michigan index of consumer sentiment for June fell to 74.1, the lowest level this year, from 79.3 last month.
"We're traveling along a canal of miserable growth," said Brian Jones, a senior U.S. economist at Societe Generale in New York, who correctly forecast the decline in production. "It's not fast enough to bring the unemployment rate down or generate an appreciable number of jobs, yet it's not weak enough that we're going back into recession."
Monetary policy makers from Britain to Japan and Canada this week sounded the alert about potential fallout from the euro zone's troubles.
The Bank of Japan on Friday kept the size of its asset-purchase fund unchanged, two days before a Greek election that may determine whether Europe's crisis worsens, and said it will pay "particular" attention to global markets.
Reports in Britain day showed exports fell in April and construction slumped, highlighting the economy's weakness as Bank of England Governor Mervyn King warns that the outlook is deteriorating rapidly.
New York-area factories expanded this month at the slowest pace since November, another report showed. The Federal Reserve Bank of New York's general economic activity index dropped to 2.3 from 17.1 the prior month. Readings greater than zero show expansion in New York, northern New Jersey and southern Connecticut.
Economists forecast a 0.1 percent advance in U.S. production in May, according to a Bloomberg News survey median. Manufacturing, which makes up about 75 percent of total production in the U.S., dropped 0.4 percent last month.
Less factory production represents a pause in the industry that helped the world's largest economy emerge from recession three years ago.
"We've seen continued weakness in Europe and we've seen only moderate growth in the U.S.," Gregory Hayes, chief financial officer at United Technologies Corp., said Thursday at an industrials and materials conference in Chicago. Hartford, Conn.-based United Technologies' products include Pratt & Whitney jet engines and Otis elevators.
Slowing growth in China and across Asia is also taking a toll on American manufacturing. China cut borrowing costs for the first time in four years last week to boost growth.
"We are seeing a slowdown in Asia that we had not expected about three months ago, and the United States is not out of the woods yet either when we look at the unemployment numbers," Clay Jones, chief executive officer of Rockwell Collins Inc., said at a Wednesday conference.
Utility production climbed 0.8 percent last month after a 5.3 percent jump in April, today's report showed. Mining output increased 0.9 percent following a 0.6 percent decrease.
Motor vehicle and parts production dropped 1.5 percent in May after a 4 percent surge the month before, the Fed said. Autos in May sold at a 13.73 million annual rate, down from 14.38 million in April and the slowest this year, according to data from Ward's Automotive Group.
Factory output excluding vehicles and parts fell 0.3 percent in May after a 0.5 percent gain. Output of business equipment increased 0.3 percent after a 1.5 percent jump in April. Consumer goods decreased 0.2 percent after a 1.4 percent gain.
Friday's data cap a week of reports pointing to an economy that's losing momentum. Retail sales fell in May for a second month, prompting economists at Goldman Sachs and Morgan Stanley to cut forecasts for second-quarter economic growth.
More Americans than forecast applied for unemployment insurance payments last week, another sign the labor market is struggling to improve after the unemployment rate unexpectedly rose to 8.2 percent last month. Payrolls increased by 69,000 in May, the fewest in a year.
Labor-market weakness is starting to take a toll on the confidence of consumers, whose spending makes up 70 percent of the economy.
The Thomson Reuters/University of Michigan preliminary index of consumer sentiment for June was projected to fall to 77.5, according to a median forecast of 66 economists surveyed by Bloomberg.
The June decline was the first in 10 months. The index averaged 64.2 during the last recession and 89 in the five years before the 18-month economic slump that ended in June 2009.
The Michigan survey's index of current conditions asks Americans whether they're better off than they were a year ago and if they think it's a good time to buy big-ticket items like cars. In June that measure eased to 82.1 from 87.2.
The index of consumer expectations for six months from now, which more closely projects the direction of consumer spending, decreased to 68.9, also the lowest this year, from 74.3, which was the highest since July 2007.
The Federal Open Market Committee, which sets the course of central bank policy, begins a two-day meeting on June 19. The group may address a cooling expansion, weaker job growth and the financial crisis in Europe.
"Will there be enough growth going forward to make material progress on the unemployment rate?" Fed Chairman Ben S. Bernanke said in testimony last week to the Joint Economic Committee. "That's the essential decision and the central question that we have who look at."
-- With assistance from Ainhoa Goyeneche and Michelle Jamrisko in Washington.
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