Auto Slump Helps Slow Factory Output

Output from the nation’s factories, mines and utilities dropped at the sharpest rate in more than 3 1/2 years in January because of a sag in the auto industry and unusually warm weather, which cut demand for electric power, the Federal Reserve Board said Friday.

In a separate report, the Fed said factories used less of their operating capacity last month than in December. Industrial production fell 1.2% last month after rising 0.2% in December--the biggest monthly drop since March, 1986, when output fell 1.3%.

“In January, the output of motor vehicles was curtailed drastically, and the extremely warm weather caused a sharp drop in utilities output,” the Fed said.

Auto sales were weak in December and domestic producers sharply reduced production, laying off some workers, although sales have since begun to pick up as dealers have offered incentives to buyers. The annual rate of auto assemblies in January plunged to 4.1 million from 6.2 million in December as auto makers sought to reduce inventories, the Fed said.

January was the warmest on record after a bitterly cold December, sharply reducing consumption of electricity and gas to heat homes. Production at utility companies fell 10.7%.