U.S. industrial production fell twice as much as forecast in December as companies pulled back to try to weather the global economic slowdown. Auto output fell to the lowest in more than a quarter century. Output at factories, mines and utilities dropped 2 percent, after a revised decline of 1.3 percent in November that was more than double the previously reported decrease, the Federal Reserve said today in Washington. Plant use matched the lowest level since 1983. Factories are reducing output and spending as export demand drops and U.S. retail sales endure the longest string of declines in at least 16 years. Democrats in the U.S. House of Representatives yesterday released a summary of an $825 billion economic-stimulus proposal that would boost government spending and provide more tax cuts to families and businesses. “Manufacturers, led by automakers, are trying to keep up with the nosedive in demand by slashing inventories and costs,” Sal Guatieri, a senior economist at BMO Capital Markets in Toronto, said before the report. Another government report showed the cost of living in the U.S. fell in December as the recession deepened, capping the smallest annual gain in a half century. Consumer Prices Americans paid 0.1 percent more for goods and services in 2008, the least since 1954, the Labor Department said in Washington. Consumer prices fell 0.7 percent in December after dropping 1.7 percent the prior month. Excluding food and energy, costs were unchanged. Industrial production was projected to drop 1 percent, according to the median forecast in a Bloomberg News survey of 77 economists. Estimates of the decline ranged from 0.2 percent to 2.5 percent. Capacity utilization, or the proportion of plants in use, fell to 73.6 percent, matching the lowest level since April 1983, from 75.2 percent in November. Last month’s plant use rate was 7.4 percentage points below the average level for 1972 to 2007, the Fed said. Economists had forecast plant use would fall to 74.5 percent, according to the Bloomberg survey. Factory output, which accounts for about four-fifths of industrial production, decreased 2.3 percent, led by a 7.2 percent decline in production of autos and parts. Regional reports yesterday showed manufacturing continued to deteriorate in the New Year. The Federal Reserve Bank of New York’s Empire manufacturing report was minus 22.2 in January, while the Philadelphia Fed’s general economic index was minus 24.3. Negative numbers signal contraction. The New York Fed’s measure of business expectations for six months from now was negative for the first time since the survey began in 2001. Fed’s Survey “Manufacturing activity decreased in most districts” in the past month, the Federal Reserve said earlier this week in its regional business survey, known as the Beige Book. The report also showed the economy weakened further across almost all regions and that there was “reduced or low activity across a wide range of industries” in most districts. Christina Romer, President-elect Barack Obama’s choice to lead the White House Council of Economic Advisers, told lawmakers yesterday that the economy is “deteriorating rapidly.” Obama consulted with the House of Representatives on their stimulus legislation. He had earlier been discussing a package of about $775 billion. The decline in motor vehicle and parts production in December followed a 2.5 percent drop a month earlier, the report said. Automakers assembled cars and light trucks at an annual rate of 6.43 million during the month, the lowest since November 1982. Consumer Goods Production of consumer durable goods, including autos, furniture and electronics, fell 4.7 percent. Chrysler LLC, whose sales in December dropped 48 percent from a year earlier, shut down production at its 30 plants for a month at the end of December. It is scheduled to start reopening the facilities next week though is still considering keeping them idled longer, spokesman Dave Elshoff said earlier this week. Utility production decreased 0.1 percent after rising 1 percent a month earlier. Mining output, which includes oil drilling, dropped 1.6 percent after a 2.2 percent increase. A slowdown in global demand has taken away one of the bright spots that manufacturers had most of last year. U.S. exports decreased 15.2 percent from August to November, the biggest four-month decline since at least 1992, according to Commerce Department data. Alcoa Inc., the largest U.S. aluminum producer, said Jan. 12 that demand for the metal may continue to weaken this year. Chief Executive Officer Klaus Kleinfeld, who has already announced production and job reductions, said he may make deeper cuts if demand continues to wane. Alcoa has set production cuts since June representing about 750,000 metric tons, or 18 percent of its global capacity. The company said on Jan. 6 it plans to fire 13,500 employees this year, eliminate 1,700 contractors and cut 2009 capital spending by 50 percent. The company said yesterday it would post $920 million in losses, including discontinued operations, related to the restructuring plan.

Source