Industrial production fell again in May but the small size of the decline indicates the recession might have hit bottom last month.

Output of the nation's factories, mines and utilities went down only 0.2 percent on a seasonally adjusted basis as increases in production of consumer goods and defense and space products nearly offset continuing drops in business equipment, intermediate products and basic materials.

It was the ninth decline in the last 10 months, with the production index now down 8.8 percent from its peak in July 1981.

The strongest gains came in the hard-hit automobile industry. Auto assemblies rose to an annual rate of 5.6 million units, up about 10 percent from April. Production of lightweight trucks also increased.

The question in coming months will be whether a continued rise in the output of consumer goods--particularly cars--will be great enough to offset declines in production of goods related to housing construction and business capital investment. For instance, U.S. automakers have scheduled production for June at about a 6.1 million unit annual rate, and have tentative plans to step that up significantly in the third quarter of the year.

At the same time, however, cash-short businesses are cutting their investment plans, and high mortgage interest rates continue to hold down the level of housing starts. Business investment probably will fall by between about 5 and 6 percent this year after adjustment for inflation, according to a number of forecasters.

Last month, production of business equipment fell 1.6 percent, and it has fallen 10.3 percent in the last year. Output of construction supplies rose 0.4 percent in May following two months of large declines, but remained 15.4 percent lower than in May 1981. Production of basic materials fell another 0.7 percent to a level 11.7 percent below a year ago.

For the primary-metals industries, the fall in business investment will prolong one of the sharpest declines on record. Output in this group of industries has fallen more than 35 percent since last August. Moreover, for the steel industry, at least, there was no sign of a pickup in orders through the early part of June. Current operating rates are the lowest since 1938.

The May increase in the output of consumer goods was small outside the auto sector. Production of so-called home goods--appliances, air conditioners, and so forth--ticked down slightly, while production of nondurables rose 0.3 percent.

The decline in the overall industrial production index mirrored information provided by employers for the May employment figures, which also showed a very small drop from April. The production index is one of the indicators used by economists at the National Bureau of Economic Research to determine peaks and troughs of business cycles.