Industrial Production Plummets

By Jeannine Aversa Associated Press Writer Friday, September 14, 2001; 7:48 PM

WASHINGTON –– Industrial activity plunged in August, extending what is now the longest decline in factory output in three decades. The discouraging economic news intensified fears that the ailing economy – shaken by the worst terrorist attack in U.S. history – could tip into recession.

The Federal Reserve reported Friday that industrial production fell by 0.8 percent last month, the 11th consecutive monthly decline, stifling hopes that manufacturers were about to turn a corner. Many economists had thought that July's tiny 0.1 percent drop in output might be signaling better days ahead.

"The manufacturing sector was in full retreat as we entered September and recent events will only make things worse," said Joel Naroff of Naroff Economic Advisors. "Conditions are still disastrous."

Optimism that the country will be able to mount a sustained recovery in the second half of this year had already been dealt a blow by this week's attacks in New York and Washington, which brought a temporary halt to airline travel, shut down the stock exchanges and disrupted business nationwide.

"For the foreseeable future, the economy is clearly going to be weaker," said Sung Won Sohn, chief economist at Wells Fargo.

Asked whether he believed the economy is now headed toward recession, Treasury Secretary Paul O'Neill, appearing on CBS Friday evening, replied: "No, I don't."

O'Neill added: "I have no doubt about our resiliency, including our economic resiliency."

In other economic news, retail sales showed a moderate gain of 0.3 percent despite the fact that auto sales dropped in August. After tumbling in July, wholesale prices climbed 0.4 percent last month as the cost of gasoline and other energy products jumped.

The 0.8 percent drop in industrial production brought the string of declines to 11, the longest stretch of weakness in more than three decades, since an 11-month fall from February through December 1960.

The manufacturing sector, hardest hit by the yearlong slowdown in economic activity, has throttled back production and slashed more than 1 million workers.

Despite rising unemployment, the nation has been kept out of a recession because consumers have continued to buy homes, cars and other big-ticket items. However, analysts are now worried that the attacks could cause consumers to stop spending, knocking the one remaining prop out from under the economy and pushing the country into recession.

While welcoming the fact that consumers continued to spend in August, "events of this past week will put a great deal of discretionary spending on hold for an indeterminate period of time," said Ken Mayland of ClearView Economics.

The Bush administration and the Federal Reserve have been working to keep that from occurring with a series of moves designed to bolster confidence.

On Friday, the Fed announced it was extending up to $30 billion in resources to United Kingdom banks operating in the United States; and increasing to $10 billion the amount of resources that the Bank of Canada can tap to provide extra money to Canadian banks operating in this country. Those moves followed a decision to extend up to $50 billion in resources to European banks doing business in the United States. All the moves will be accomplished through swapping U.S. dollars for currencies of the countries involved.

The weakness in industrial output in August was led by sizable decreases in production of autos and auto products and various consumer goods. Information processing equipment, a category that includes computers, was down 0.5 percent in August after an even larger 1.6 percent drop in July.

The declines in production left U.S. industry operating at just 76.2 percent of capacity in August, the weakest performance since July 1983.

While price increases have been worse than analysts had been expecting, the core inflation rate – which excludes the volatile energy and food sectors – fell by 0.1 percent last month, the first drop since February.

The strength in retail sales last month was led by a 1.4 percent increase in sales at gasoline stations. But sales at department stores and restaurants rose, offsetting a 0.2 percent drop in car sales.

To jump-start the economy, the Fed has cut interest rates seven times this year. Some believe the Fed might opt to cut rates again before its next regular meeting Oct. 2.

http://www.washingtonpost.com/ac2/wp-dyn/A33564-2001Sep14?language=printer

-- Martin Thompson (mthom1927@aol.com), September 15, 2001

Answers

This is really bad news -- all this coming down on us, even before Sept. 11.

-- Wayward (wayward@webtv.net), September 15, 2001.

If this is bad, wait until Oct. when the Sept. figure is reported -- I bet it will be a real crash.

-- RogerT (rogerT@c-zone.net), September 15, 2001.