The Economy continued to expand at a heady clip in May as the output of the nation's factories, mines and utilities rose 1.1 per cent, the Federal Reserve Board reported yesterday.

It was the fourth month in a row that the country's industrial production rose sharply. It has fallen in January because of dislocations caused by fuel shortages and severe cold.

The continued rise in factory production means that employment should continue to grow over the next several months, too, because increases in industrial output translate quickly into hirings and recalls of persons who have been laid off.

The Federal Reserve Board said that increases in output in May were "widespread among products and materials, but auto production edged off for the second successive month."

Even though automobiles were being assembled at an annual rate of 9.2 million, which is 1.4 per cent below the April rate, auto output is still strong.

The decline in automobile production, however, was offset by increases in output of other consumer durable goods, especially home goods such as furniture and appliances, the nation's central bank noted.

Maynard Comiez, a top Commerce Department economist, said the May production index shows a "continuing strong short-term outlook for the economy."

The unemployment rate fell again in May from 7 to 6.9 per cent, the first time the key indicator has been below 7 per cent in two and one-half years. The wholesale price index, which had been rising at a 13.1 per cent annual rate in the early months of the year, cooled off substantially in May as well.

Overall economic growth - which includes not only industrial production but all the goods and services produced by American citizens - increased at a 6.4 per cent annual rate during the frist quarter despite the cold weather, and is increasing strongly during the current three-month period.

"I can't think of any data that haven't been encouraging recently," Comiez noted.

Economic growth is expected to slow somewhat in the last half of the year, which means that the sharp gains in employment recorded since January likely will not be repeated in the period from July to January.

Even though economic growth - as measured by the real gross national product - will not be as strong in the last half of the year, Charles L. Schultze, chairman of the President's Council of Economic Advisers, has said he thinks the unemployed rate could fall as low as 6.6 per cent by year's end. President Carter's original goal was to get joblessness below 7 per cent by December.

The Federal Reserve reported that overall production of consumer goods was up 0.4 per cent, including the decline in auto production.

Output of business equipment rose 1.8 per cent, following a strong 1.6 per cent gain in April. Production of business equipment - such as building and manufacturing machines, and transportation and farm equipment - has increased 4.3 per cent since February and is 11 per cent higher than a year ago.

Production of materials increased by 1.2 per cent, mainly because of a sharp gain in steel production. Some of the steel increase may represent an attempt by steel users to beat a scheduled June price increase.