Factory Output Declines 0.6%

Output at the nation’s factories, mines and utilities last month took its biggest plunge since the nation was struggling to emerge from recession nearly five years ago.

Analysts said the January figures are one more sign that the economy, burdened by bad weather and nervous consumers, slowed dramatically as the year began. But many say they expect improvement later this year.

The Federal Reserve Board reported Friday that industrial production fell 0.6% in January, the steepest decline since output slid 0.8% in March 1991, the last month of the 1990-91 recession.

The drop reflected continued weakness in the manufacturing sector, the central bank said, but it also pointed out that the decline was aggravated by the blizzard that hit the East Coast in early January, forcing many plants to close.

“The industrial production report is not a report about the economy, it’s a weather report,” contended economist Robert Brusca of Nikko Securities Co. International in New York. But economist Jerry Jasinowski, president of the National Assn. 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.”

Meanwhile, the latest consumer confidence data reportedly suggests no immediate increase in Americans’ spending. The University of Michigan’s mid-month report on its February consumer sentiment index is said to have shown a decrease to 86.6 from 89.3 in January, according to market sources who have seen the report.

In another report, the Commerce Department said Friday that construction spending rose 0.9% in December, contrasted with a loss of about that much for November.

But spending on single-family housing fell for a second straight month. Analysts say that portion of the housing market was reflecting weak job and income growth, offsetting the effect that falling mortgage rates would be expected to produce. Government spending, curbed by budget cuts, was virtually unchanged.

Construction outlays for all of 1995 were up 4%, but that advance is less than half the 9.1% increase for the previous year.

Analysts did find a glimmer of hope in a second Commerce Department report released Friday. That one says November business inventories edged up just 0.1%, the smallest increase since a similar increase in March 1994.

An inventory pileup has been blamed for much of the economy’s recent weakness, since a big backlog of goods often means reduced orders and production while businesses attempt to clear their shelves and back lots. At the same time, business sales rebounded 0.7% in November after slipping 0.3% the month before.

“With much of the inventory correction behind us, we can be more hopeful about the future,” Brusca said.

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Industrial Production

Seasonally adjusted index:

1987=100

(please see newspaper for chart)

January 1996: 121.9

Source: Federal Reserve Board