Industrial Production Skids; Weather Contributes To Drop
Output at the nation’s factories, mines and utilities took its biggest plunge in January since the nation was struggling to emerge from the last recession nearly five years ago.
It was one more sign, analysts said, that the economy, burdened by bad weather and nervous consumers, had slowed dramatically as the year began. But many expect improvement later this year.
The Federal Reserve reported Friday that industrial production fell 0.6 percent in January, the steepest decline since output slid 0.8 percent in March 1991, the final month of the 1990-91 recession.
Although the drop reflected continued weakness in the manufacturing sector, the central bank said it was aggravated by the blizzard that hit the East Coast in early January and forced the closing of many plants.
“The industrial production report is not a report about the economy,” contended economist Robert Brusca of Nikko Securities Co. International in New York. “It’s a weather report.”
But Jerry Jasinowski, an economist and president of the National Association of Manufacturers, said that in addition to the severe weather, the report “reflects ongoing problems such as weak spending and clearly points to a poor first quarter.”
The latest consumer confidence report suggested no immediate increase in Americans’ spending habits. The University of Michigan’s midmonth report on consumer sentiment reportedly fell to 86.6 from 89.3 in January.
The Commerce Department reported Friday that construction spending rose 0.9 percent in December, wiping out a similar loss a month earlier.
But spending on single-family housing fell for a second straight month. Analysts say the single-family sector was being held back by weak job and income growth that is offsetting falling mortgage rates.
Government spending, curbed by budget cuts, was virtually unchanged.
While construction outlays for all of 1995 were up 4 percent, the advance was less than half the 9.1 percent increase the previous year.
Analysts did find a glimmer of hope in a second Commerce Department report Friday. It said business inventories edged up just 0.1 percent, the smallest increase since a similar increase in March 1994.
The inventory pileup has been blamed for much of the economy’s recent weakness, since a big pileup of goods often means reduced orders and production while businesses attempt to clear their shelves and backlots.
At the same time, business sales rebounded 0.7 percent in November after slipping 0.3 percent a month earlier.
“With much of the inventory correction behind us, we can be more hopeful about the future,” Brusca said. “With lower interest rates, I expect the economy to be better this year.”
© Copyright 1996 Associated Press. All rights reserved. This material may not be published, broadcast, rewritten, or redistributed.