Industrial Output Posts Weak Gain

[February 16, 2008]  WASHINGTON (AP) -- The nation's industrial output posted a modest increase in January but all of the strength came from a weather-related jump in output at utility companies. Analysts said the poor performance was the latest sign that the economy has slowed significantly in recent weeks.

The Federal Reserve reported Friday that industrial production rose by 0.1 percent in January, a weak showing which matched the December increase and was in line with expectations.

But all of the strength came from a big 2.2 percent rise in output to heat homes and businesses as cold weather returned following a milder-than-normal December when utility output had fallen by 0.2 percent. In contrast, manufacturing output was flat - the poorest showing in three months as factories were feeling the effects of a slowdown that has raised worries the country is slipping into a recession.

Output fell by 1.3 percent at auto plants as the industry continued to struggle with weak demand in the face of higher gasoline prices and the sluggish economy. Output also fell at factories making wood products and furniture, sectors which have been hit hard by the prolonged slump in housing.

Otherwise, output was up at factories producing computers, electronic products and aerospace equipment. It was down 1.8 percent in mining, a category that includes coal production and oil exploration.

Analysts said manufacturing would have been in even worse shape had it not been for declines in the value of the dollar against other currencies, which has helped to give a significant boost to export sales.

"The only reason that the manufacturing sector is not in a sharp decline is that the decline in the value of the dollar has made U.S. exports very competitive in the world market again," said Daniel Meckstroth, chief economist for the Manufacturers Alliance/MAPI. "Surging exports are cushioning the domestic weakness."

But economists cautioned that manufacturing is likely to lag for the next six months because of an expected sharp slowing in consumer spending, which accounts for two-thirds of total economic activity.

Analysts noted that the University of Michigan survey of consumer confidence fell sharply - to a reading of 69.6 in mid-February - the lowest in 16 years as consumers struggled with a host of problems ranging from the severe housing slump to tighter credit, a weakening job market and falling stock prices.

"Consumers are pulling back on spending and consumer sentiment continues to nosedive," said Brian Bethune, senior economist at Global Insight, a private forecasting firm.

All the economy's problems contributed to dragging growth, as measured by the gross domestic product, down to a weak 0.6 percent in the final three months of last year. Some economists believe the GDP will turn negative in the current quarter and the April-June period, matching the classic definition of a recession.

In an effort to ward off a full-blown recession, Congress quickly passed a $168 billion economic stimulus plan that will provide rebate checks to millions of households starting in May.

In addition, the Federal Reserve has aggressively cut interest rates, and Federal Reserve Chairman Ben Bernanke signaled in testimony to a congressional committee on Thursday that the central bank was prepared to do more to boost growth.

Federal Reserve board member Frederic Mishkin supported that view in a speech Friday in which he said the Fed "will continue to act decisively" if needed to combat a more pronounced slowdown.

The Congressional Budget Office said Friday it had revised its forecast for economic growth slightly higher for 2008 because of the Fed interest rate cuts and the just-passed stimulus package. CBO said it now believed the economy would grow by 1.9 percent - up from its prior forecast of 1.7 percent growth. For all of 2007, the economy grew by 2.2 percent, the slowest pace in five years.

The labor market shed 17,000 jobs in January, the first monthly job loss in more than four years, a decline that was led by weakness in construction and manufacturing.

Construction companies cut 27,000 jobs last month and have lost 284,000 since employment peaked in September 2006 as the five-year boom in housing was coming to an end. Factories eliminated 28,000 positions in January, and have cut 269,000 jobs over the past 12 months.

[Associated Press; By MARTIN CRUTSINGER]

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