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News > Economy
U.S. output shrinks
May 14, 2001: 10:40 a.m. ET

Industrial production, capacity at recessionary lows; inventories decline
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NEW YORK (CNNfn) - Industrial production in the United States fell for the seventh straight month in April, the government said Monday, showing continuing weakness in the manufacturing sector a day before Federal Reserve policy makers meet to discuss cutting interest rates to prop up the sluggish economy.

The Federal Reserve said industrial output fell 0.3 percent in the United States last month after falling a revised 0.1 percent in March. Economists polled by Briefing.com expected output to fall by only 0.2 percent.

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The March figure was revised from a gain of 0.4 percent, indicating industrial output for the month was weaker than first thought. Output has fallen seven straight months, its longest string of declines since the recession of 1982.

The Fed also said factories, mines and utilities ran at 78.5 percent of capacity, compared with 78.9 percent in March, its lowest level since April 1991, during the last recession. Economists expected capacity utilization of 79.1 percent.

Factory output fell 0.3 percent as the manufacturing sector continued to bear the brunt of an economic slowdown that has forced businesses to cut back capital spending.

The news comes as Wall Street waits for Tuesday's meeting of Fed policy makers, who will decide whether to cut interest rates for the fifth time this year in a bid to keep the United States from falling into recession.

"These data continue to confirm that the manufacturing sector is in recession," said Steven Wood, chief economist with FinancialOxygen.

Wood said he thought the data would help persuade the Fed to cut its federal funds rate, an overnight bank lending rate, from 4.5 percent to 4 percent, and other economists agreed.

"The thing that jumps out is the downward revisions on the data, which were pretty substantial and give you a much weaker picture than expected," said Henry Willmore, chief U.S. economist at Barclay's Capital Group. "I think these revisions reinforce the case for a (half-percentage) point cut at (Tuesday's Fed) meeting."

Inventories shrink

Separately, the Commerce Department said business inventories fell 0.3 percent to $1.213 trillion in March after falling a revised 0.4 percent in February. Economists polled by Briefing.com expected inventories to fall by 0.2 percent.

The report said car dealers made significant progress in paring back inventories. Stocks of cars tumbled 1.3 percent in March to $118.68 billion after 1.8 percent drop in February.

However, the report showed demand for goods remained somewhat sluggish. Business sales declined by 0.3 percent to $888.32 billion in March after a 0.4 percent decrease in February.

With sales and inventories falling by similar amounts, the stock-to-sales ratio, a measure of how long it would take to totally deplete stocks at the current sales pace, held steady at 1.37 months' worth.

"Unless there is a quick rebound in sales, this suggests further weakness in production and declines in inventories over the months ahead," Wood said.

Still, it was the first back-to-back monthly drop since January and February 1992, and it could mean businesses finally are beginning to unload unsold goods on their shelves.

Economists view a reduction in excess stocks as a positive development because it brings supplies more in balance with demand and puts companies in a more stable position going forward. graphic





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