Industrial Production Off 0.1% in September

The nation’s industrial output fell by a modest 0.1% during September, the government reported Wednesday, although experts remain convinced that the economy will continue its relatively healthy, but dramatically uneven, pace of growth.

Over the past year, industrial production has risen 1.1%, the Federal Reserve Board said in its monthly report on the nation’s factories, mines and mills.

But while American service industries are still booming, propelling the overall expansion, manufacturing firms are suffering in the wake of tough price competition from foreign goods. Last month, the drop in output stemmed primarily from a decline in the production of automobiles and appliances, the Fed reported.

“Our economy is going in two directions” as the number of service jobs rises and manufacturing employment shrinks, declared Leslie M. Alperstein, president of Washington Analysis Corp., an affiliate of the First Manhattan Co. brokerage firm. Nevertheless, Alperstein argued, “the economy has a good, fundamental foundation to it.”

35th Month of Recovery

As the business expansion moves into its 35th month, production and sales continue to improve, but they lack the big boost of activity needed to cut into unemployment, which has been hovering around 7% for a year.

“We still have a large number of people without jobs and a lot of idle industrial capacity,” said Jeff Faux, president of the Economic Policy Institute, a Washington research organization. “Nobody’s talking as if there’s going to be a real dent in the unemployment rate.”

On the other hand, there seems to be little danger of the economy slipping into a recession, economists said.

Consumer Sentiment ‘Strong’

“Consumer sentiment is still strong, and it looks as if retail sales this Christmas will be stronger than last year,” said Martin Mauro, an economist with Merrill Lynch, Pierce, Fenner & Smith.

The United Auto Workers strike against Chrysler Corp. that began Wednesday probably will not have any significant impact because it involves a relatively small number of workers in a giant, diversified economy, he noted.

Industrial output has fluctuated in recent months, rising in June, dropping in July, then gaining 0.6% during August before falling last month, the Fed reported. Production in two major categories--consumer goods and business equipment--declined, while the output of construction supplies and defense equipment rose.

The output of consumer goods for the home, including appliances, was 5% below the level of a year ago.

Paradoxically, retail stores are selling more consumer merchandise. The government reported last week that retail sales rose a hefty 2.7% during September. If Americans are spending freely, they are obviously slaking some of their thirst for goods with large volumes of imports.

The trade deficit--the gap between what the United States imports and what it sells abroad--is expected to hit a record $140 billion this year. The strong dollar, which has risen in value for four years in relation to other currencies, makes imports cheaper for Americans while driving up the price of U.S. goods for foreigners.

For import-sensitive industries such as steel, chemicals and textiles, along with many other manufacturing ventures, there is a recession under way, generating pressures in Congress to limit imports.

But the problems of the sluggish industrial sector, illustrated in Wednesday’s report on the drop in factory output, are overshadowed by the expansion of the overall economy, according to optimistic observers.

“We don’t have any evidence to suggest that things are slowing down,” said Ronald Utt, deputy chief economist for the U.S. Chamber of Commerce. “The real trend is up,” he said, citing improvements in housing starts and retail sales.

Utt said he expects the economy to grow at a 4% rate during the coming year, a level that should reduce unemployment. The labor force grows every year as young workers look for their first jobs and immigrants seek employment, making it necessary for the economy to expand by 3% just to accommodate new job seekers. A greater growth rate is needed to generate enough jobs for both new workers and some of those previously unemployed.