Industrial Output Falls 0.2% in May : Economy: Drop marks third straight monthly decline. But analysts doubt a serious downturn.

From Associated Press

The nation's industrial output fell in May for the third straight month--the first time that has happened since the last recession in 1991.

Despite the gloomy figures, analysts said they doubt the economy is headed into a serious downturn and predicted it will improve later this year.

The Federal Reserve Board said Thursday that a steep drop in auto production caused its closely watched gauge of industrial output to fall 0.2% last month.

In a sign of easing inflation pressures, the Fed also reported that slowing was apparent for the fourth consecutive month at the nation's factories, mines and utilities.

Also, a business survey by the Federal Reserve Bank of Philadelphia suggested the slowdown is continuing. Manufacturers in the region reported declines in new orders, shipments and employment in June and said they expect only modest improvements over the next six months.

"If you believe the figures, things are just getting worse and worse," said economist Michael Evans, who heads his own forecasting firm in Boca Raton, Fla. "I don't know whether to believe that or not."

Evans said most signs point to a flat economy in the second quarter, which ends in two weeks. But he predicted a modest rebound after that as a large stockpile of business inventories dwindles.

The stock market hit a record, with the Dow Jones industrial average up 5.19 points to 4.496.27. The yields on the Treasury's main 30-year bond rose 0.03 percentage point to 6.60%.

Alan Blinder, vice chairman of the Federal Reserve Board, said at a meeting in Minneapolis that "there is abundant evidence of a slowdown, but not evidence of a recession."

The economy's dramatic slowdown since the booming growth that closed out last year improves chances that the Fed will cut interest rates this summer, analysts said. But most predicted it will not occur before the end of August.

"There is plenty of evidence that the economy is weak enough to need a boost from an easier Fed," said Rosanne Cahn of CS First Boston Corp. in New York.

The May drop in industrial output follows declines of 0.5% in April and 0.2% in March. Output was flat in February.

The last time it fell for at least three straight months was in March, 1991. That actually concluded a string of six consecutive losses, as the economy then emerged from recession and launched a recovery that has continued until now.

The Fed also reported Thursday that industries operated at 83.7% capacity in May, a drop of half a percentage point from April and the lowest level in more than a year.

"Capacity utilization should continue to fall in coming months, and any production bottlenecks should dissipate," said Bruce Steinberg of Merrill Lynch & Co.

In another report, the Labor Department said the number of Americans filing new claims for jobless benefits fell by 5,000 last week, the third straight decline, to a seasonally adjusted 371,000.

But the less volatile four-week average for new claims was 376,500, up from a revised 375,500 the previous week.

(BEGIN TEXT OF INFOBOX / INFOGRAPHIC)

Industrial Production

Seasonally adjusted index, 1987=100

May 1995: 120.9

Source: Federal Reserve Board

Capacity Utilization

Percentage of total capacity; seasonally adjusted:

May 1995: 83.7%

Source: Federal Reserve Board

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