In New Signal of Slowing, April Factory Output Fell
The nation’s mines, factories and utilities operated at a lower rate last month than in March, with a sharp drop in the output of motor vehicles and parts, the Federal Reserve Board said Tuesday.
The new signs of economic sluggishness followed reports last week that retail sales weakened in April while wholesale prices dropped from March levels, which economists said might encourage Fed policy-makers to consider lowering interest rates.
The Fed said industrial production for April fell 0.4%, the first decline since January, when it fell a steep 1.0%. The rate rose 0.5% in March and 0.9% in February.
The Fed said production of autos and light trucks fell nearly 14% in April from March. But excluding motor vehicles and parts, industrial output was unchanged in April and has shown little movement since January, the Fed added.
“We are accumulating a dossier that the economy lost some momentum during the last month,” said economist William Sullivan of Dean Witter Reynolds Inc.
Joseph Carson, an economist at Chemical Bank, said that when all of the recent data is analyzed collectively, the greater risk for the economy is slow growth, not rising inflation.
“What today’s data tells us is that the manufacturing sector has yet to hit bottom and that talk of an inventory-led rebound in the economy is mistaken,” he said.
Consumer goods production was down 1.0% in April after rises of 0.9% in March and 1.1% in February. Business equipment, a category also affected by the auto industry, dropped 0.9% last month after gains of 1.5% in March and 1.6% in February.
The Fed said output of construction supplies also weakened in both April and March, erasing gains from last fall and early this year when unseasonably warm weather made it possible for builders to continue projects.
As a result, industrial operations ran at only 83.0% of capacity in April compared to 83.5% in March and 83.2% in February.
The last time the rate was lower was in January, when capacity use fell to 82.7% because auto producers cut output and laid off workers temporarily while dealers reduced stocks of unsold cars left over from late 1989.
Manufacturing output dropped to 82.2% of capacity in April from 82.9% in both March and February, the Fed said. Operating rates for auto plants dropped to 65.1% in April from 75.6% in March.
In contrast, mining output increased to 88.3% from 87.4% because of gains in the oil and gas sector and continued strength in coal mining, the Fed said.
Utility companies’ operating rates were up to 87.1% in April from 86.6% in March.
Carson believes the Fed will not change its credit policy in a hurry, but when it does it will be toward reviving the economy with easier interest rates.
INDUSTRIAL PRODUCTION
Seasonally adjusted index, 1987=100 April,’90: 108.7 March,’90: 109.1 April,’89: 108.6 CAPACITY UTILIZATION
Seasonally adjusted percent of total capacity April,’90: 82.2% March,’90: 82.9% April,’89: 84.2% Source: Federal Reserve Board
