WASHINGTON (Reuters) -

Factory output dropped 0.4% last month after an upwardly revised 0.4% gain in March, the Federal Reserve said on Thursday. Economists polled by Reuters had forecast production would slip 0.2% after a previously reported 0.3% rise.

Production at factories increased 1.2% on a year-over-year basis in April. President Donald Trump's shifting tariffs policy poses a significant headwind to manufacturing, which accounts for 10.2% of the economy and relies heavily on imported raw materials.

While the Trump administration slashed duties on Chinese imports last weekend to 30% from 145%, a 10% tariff on nearly all imports remained in place as did a 25% tax on steel and aluminum as well as motor vehicles and parts. 

Trump has defended the tariffs as necessary to revive a long-declining U.S. industrial base, but economists say it is impossible to bring factories that moved overseas back to the country, citing high production and labor costs as among the challenges.

Manufacturing grew at a 4.8% rate in the first quarter after a prolonged slump due to higher interest rates.

Motor vehicle and parts output plunged 1.9% last month after increasing in the prior two months likely as automakers tried to stay ahead of tariffs. Motor vehicle manufacturers have warned tariffs would significantly cut into profits this year.

Durable manufacturing production fell 0.2%. Nondurable manufacturing production decreased 0.6%, with most industries posting declines.  

Mining output slipped 0.3% after posting strong gains in the previous two months. Utilities production rebounded 3.3%. That followed two straight monthly declines. 

Overall industrial production was unchanged after easing 0.3% in March. It increased 1.5% on a year-over-year basis in April.

Capacity utilization for the industrial sector, a measure of how fully firms are using their resources, dipped to 77.7% from 77.8% in March. It is 1.9 percentage points below its 1972-2024 average. The operating rate for the manufacturing sector dropped four-tenths of a percentage point to 76.8%. It is 1.4 percentage points below its long-run average.