Production decline slows recovery
Published: November 18, 2009, 12:30 am
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WASHINGTON — A decline in factory production in October signals that consumers and businesses remain cautious in their spending, with the economic recovery likely to be sluggish.
At the same time, the weak economy is taming inflation. Wholesale prices rose less than expected last month, giving the Federal Reserve more leeway to keep interest rates low to try to spur a stronger economic rebound.
Industrial production edged up 0.1 percent last month, the Fed reported Tuesday. It was the poorest showing since output fell 0.4 percent in June. Since then, industrial output had posted strong gains, helped by a rebound in auto production.
But auto output slipped 1.7 percent last month. That helped drag down total factory output, the biggest portion of industrial production.
Analysts say industrial production should post modest gains in coming months, consistent with their view that the economy has begun to recover. But they cautioned that the rebound in manufacturing, just as in other sectors of the economy, will be slow and halting.
“We are still dealing with a number of headwinds,” said Sal Guatieri, senior economist at BMO Capital Markets. “Consumers are facing high joblessness and the need to pay down debt further. And other sectors including housing and commercial real estate remain under stress.”
Overall industrial production would have fallen except for a 1.6 percent surge at utilities. That gain reflected an unusually cold October that boosted electricity production. Output in the mining sector, which covers oil and gas drilling, dipped 0.2 percent.
Weaker-than-expected reports in retail sales, foreign trade and industrial output, suggest that the nation’s gross domestic product is likely to be revised lower for the third quarter and remain modest next year.
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