Industrial production drops 2nd month in row

Capacity of factories in use declines to 72.9%, lowest level since 1983

April 16, 2003|By BLOOMBERG NEWS

WASHINGTON - U.S. industrial production dropped in March for a second straight month, as manufacturers cut back during the war with Iraq and utilities generated less power because of warmer weather.

Production at factories, mines and utilities fell 0.5 percent last month after a revised 0.1 percent decline in February, the Federal Reserve reported yesterday. The percentage of factories in production was the lowest in two decades. The production drop at utilities was the biggest in five years.

"The run-up to the war caused businesses to put all decisions on hold," said Jade Zelnik, chief economist at RBS Greenwich Capital in Connecticut, who correctly forecast the 0.5 percent production decline. "Once all the uncertainties clear, we will see the resumption of a very gradual, sluggish up trend."

The slump may have spread into this month. April's factory index for New York state fell to the lowest level since October 2001, just after the terror attacks, the Federal Reserve Bank of New York said in a separate report.

Economists had forecast a 0.2 percent drop in March industrial production, according to the median of 68 estimates in a Bloomberg News survey.

The proportion of industrial capacity in use fell to 74.8 percent, the lowest level in 15 months, while the factory-use component sank to 72.9 percent, the lowest point since May 1983.

Separately, the factory index compiled by the Federal Reserve Bank of New York dropped to minus 20.4 in April from minus 2.8 in March. It was the second straight reading below zero, the longest stretch of negative readings since 2001. Negative numbers mean a majority of factories reported a deterioration in business.

In other economic news yesterday, the Dow Jones industrials rose 51 points to 8,402 and the Nasdaq composite index added 6 points to 1,391.

Utility production fell 4.1 percent last month after increasing 1.3 percent a month earlier, yesterday's main Federal Reserve report showed. It was the biggest drop since a 4.5 percent decrease in January 1998. The average national temperature in March was 44 degrees Fahrenheit, 1.6 degrees warmer than the 1895-2003 average, according to government reports.

Production at mines rose 0.6 percent, after rising 0.4 percent in February.

Work at factories, which accounts for almost 90 percent of industrial production, fell 0.2 percent last month after falling 0.3 percent in February. Production of consumer durable goods such as automobiles, furniture and electronics decreased 0.8 percent after falling 1.7 percent the previous month.

March's output decline was led by a 1.8 percent drop in the assembly of vehicles and parts. Vehicle manufacturing fell 2.4 percent in February as sales slowed. Industrywide sales averaged 15.9 million vehicles at an annual rate last quarter, the weakest since the third quarter of 1998. Total inventories reached an estimated 4.01 million vehicles in March, a record for any month, according to industry statistics.

Factories cut 38,000 workers from their payrolls last month, the 32nd consecutive decline, and average number of hours worked per week held steady at 40.8. That brought the index of total manufacturing hours worked down to 90, the lowest since 1949.

Weak demand has kept factories from using all their available capacity leading to sluggish business investment in plant and equipment, which has restrained growth. During the record 10-year expansion from 1991 to 2000, capacity use averaged 82.2 percent. Last month's utilization rate compares with an 18-year low of 74.6 percent reached in December 2001.

Business equipment production, which includes transportation and information processing equipment, fell 0.2 percent in March after falling 0.3 percent the previous month. Production of computers and other office equipment rose 2 percent after a gain of 1.4 percent.

Industrial production grew at a 0.4 percent annual rate in the first quarter compared with the previous three months. Production is forecast to grow at a 2.2 percent annual rate this quarter, according to the consensus estimate of 53 economists surveyed this month by Blue Chip Economic Indicators. The pace will accelerate to 4.6 percent in the last three months of 2003.

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