Industrial Output Falls, Second Time In 3 Months

By: AP
By: AP

WASHINGTON - Industrial output plunged in April as factories making everything from autos to heavy machinery felt the adverse effects of the weak economy. Analysts held out hope that production will revive in the second half of the year, helped by the government's economic stimulus checks.

Industrial production dropped 0.7 percent last month, the Federal Reserve reported Thursday, more than double the decline that economists had expected.

Manufacturing output dropped 0.8 percent with half of that weakness coming from large cutbacks in auto production with automakers struggling with falling demand for new cars because of the slumping economy and production cutbacks caused by a strike at a parts supplier for General Motors.

The decline in overall production matched a 0.7 percent decrease in February and followed a weak 0.2 percent increase in March. The nation's industrial sector has been feeling the impact of the slowdown in the rest of the economy and economists predicted that would continue as weak consumer demand results in rising levels of unsold goods, causing more production cutbacks.

Brian Bethune, an economist at Global Insight, said production will shrink again this quarter, marking the third negative quarter, the longest stretch of weakness in manufacturing since the last recession in 2001 recession.

Bethune predicted a mild rebound for manufacturers starting this summer when consumers start spending 130 million economic stimulus checks that are now being mailed out.

"That extra cash is expected to roll gradually into consumer spending by June," he said, calling the timing "indeed fortuitous." Many analysts believe the $168 billion stimulus program Congress passed in February will not keep the country from toppling into a recession but will make the downturn shorter and milder than it otherwise would have been.

Economists said the manufacturing slump would have been more severe had it not been for the decline in the value of the dollar, which has helped boost exports to record levels, offsetting some of the weakness in domestic demand.

"As bad as the industrial downturn may seem, the decline in the value of the dollar and subsequent surge in export orders is a cushion," said Daniel J. Meckstroth, chief economist for the Manufacturers Alliance/MAPI.

The report on industrial production for April showed that demand slipped by 0.8 percent in the mining sector, which also includes petroleum and natural gas production. Output at utilities rose by 0.3 percent.

The drop in overall production pushed the industrial operating rate to its lowest point in more than two years. The nation's factories, mines and utilities operated at 79.7 percent of capacity last month, the first time the operating rate has been below 80 percent since October 2005 when it stood at 79.8 percent because of disruptions from the Gulf Coast hurricanes.

In other economic news, the Labor Department reported Thursday that applications for jobless benefits rose by 6,000 last week to 371,000, a gain that was in line with expectations.

The increase of 6,000 claims applications last week was the smallest one-week move in about two months. Claims have been unusually volatile in recent weeks, reflecting strike-related layoffs in the auto industry and trouble the government had in seasonally adjusting the data to take into account an unusually early Easter.

For the week ending May 3, the total number of people receiving unemployment benefits rose by 28,000 to 3.06 million, the third straight week that this figure has been above 3 million, another sign that the weak economy is having an adverse effect on the labor market.

The weak economy has triggered four straight months of job losses, often a sign that a recession has started. However, the April drop was just one-fourth the size of job losses in March, giving hope that the current economic slowdown may not be as severe as the past two recessions.


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