BLBG: U.S. Industrial Production Drops More Than Forecast
Industrial production in the U.S. fell for the 14th time in the last 15 months as factories trimmed unwanted stockpiles.
Output at factories, mines and utilities dropped 1.5 percent last month, more than anticipated and matching the prior month’s decrease, according to a report from the Federal Reserve today in Washington. The amount of industrial capacity in use fell to 69.3 percent, the lowest level since records began in 1967.
The economic slump, already in its second year, will persist as long as factories keep halting assembly lines to reduce a glut of inventories that piled up after sales here and abroad collapsed. With inflation a distant concern, the Federal Reserve can continue to pump money into financial markets to unlock credit and revive growth.
“The manufacturing sector in particular is in recession,” John Silvia, chief economist at Wachovia Corp. in Cleveland, said before the report. “The manufacturing sector still is trying to clean up on inventories and so they’ve cut back on production pretty significantly in the first quarter and in the second quarter.”
Economists forecast industrial production for March fell 0.9 percent, according to the median of 76 projections in a Bloomberg News survey. Estimates ranged from a drop of 1.8 percent to no change.
New York Index
Another report today showed manufacturing in New York state contracted this month at the slowest pace since September and the outlook for the next six months improved for a second time. The New York Fed’s general economic index rose to minus 14.7, better than forecast, from minus 38.2 in March. Readings below zero for the Empire State index signal manufacturing activity is shrinking.
Figures from the Labor Department showed the cost of living unexpectedly fell 0.1 percent in March after a 0.4 percent gain the previous month. Excluding food and energy, costs rose 0.2 percent for a third month.
Stocks fell following the reports and after Intel Corp. said the global economy is still “fragile.” The Standard & Poor’s 500 index fell 0.6 percent to 836.68 at 9:35 a.m. in New York. Treasury securities were little changed.
Furniture, Computers
The decline in production was led by decreases in consumer goods, including furniture and electronics, and by business equipment such as computers and communications gear.
Intel’s Chief Executive Officer Paul Otellini yesterday said his company still faces a “fragile global economic environment.”
Sales of personal-computer processors likely bottomed out in the first quarter after manufacturers worked through their stockpiles of parts, Otellini said. While the worst of the slump is “probably now behind us,” the world’s biggest chipmaker isn’t ready to predict growth this quarter, he said.
Motor vehicle and parts production climbed 1.5 percent in March after increasing a revised 9.4 percent the prior month, today’s Fed report showed. Auto assemblies are recovering after slumping to a record low in January.
Auto Slump
General Motors Corp. sales fell 45 percent in March compared with the same month last year and the company said April 1 its North American production declined 58 percent. On a seasonally adjusted basis, automakers sold cars and light trucks at a 9.9 million rate last month, up from 9.1 million in February.
Ford Motor Co., the only U.S. automaker forgoing federal aid, it trying to shield itself from potential bankruptcies at General Motors and Chrysler LLC by lending money to partsmakers, Americas chief Mark Fields said in an interview April 8.
Utility production increased 1.8 percent. Mining output, which includes oil drilling, dropped 3.2 percent.
Production of business equipment declined 2.3 percent.
The global economic recession has forced manufacturers to slash workforces, close factories and cut production as stockpiles swelled.
Job Cuts
Deere & Co., the world’s largest maker of farming equipment, said yesterday it plans to combine divisions that make agricultural equipment and consumer and commercial products and possibly fire 200 workers because of the reorganization. The company said last week it will fire 160 workers and last month eliminated 325 jobs.
Others are planning reductions way into the future. Boeing Co., the world’s second-largest commercial-plane maker, said this month it will cut production of its most profitable model next year. The company also delayed plans to increase output of its new 747-8 jumbo jet and the 767.
Consumer spending will falter again this quarter and only gradually recover toward the end of this year, according to economists surveyed earlier this month.
The economy, which contracted at the fastest pace since 1982 in the fourth quarter of 2008, will shrink in the first half of this year and then slowly improve, rising at a 0.4 percent annual rate in the third quarter and 1.5 percent in the fourth, the survey showed.
Fed Chairman Ben S. Bernanke yesterday said there are signs that the “sharp decline” in the U.S. economy is slowing, making for a potential “first step” toward a recovery from the worst recession in a generation.
“Today’s economic conditions are difficult, but the foundations of our economy are strong, and we face no problems that cannot be overcome with insight, patience and persistence,” Bernanke said.
Separately, President Barack Obama said his economic- stimulus package and plans to rescue banks and bolster housing are starting to “generate signs of economic progress,” while warning of “pitfalls” ahead.
