Prices Steady, but Output Falls in September

Inflation disappeared in September, but the nation’s factories over the summer turned in their worst performance since the end of the 1990-91 recession, according to government reports released Friday.

The unexpectedly weak manufacturing report underscored the likelihood the Federal Reserve Board will cut interest rates again next month to prevent world financial turmoil from sending the American economy into a tailspin, economists said.

The consumer price index showed no change last month for the first time since March, the Labor Department said. For the year so far, inflation is running at a scant 1.4% annual rate, even less than the 11-year low of 1.7% for all of last year.

Excluding volatile food and energy costs, core prices rose 0.2% in September and are up at a 2.4% annual rate this year, compared with 2.2% for all of last year.

Meanwhile, production at factories, mines and utilities slipped 0.3% in September, the Federal Reserve said. The drop would have been worse if not for a 1.6% surge in utility output, reflecting air conditioning use during an unusually warm September.

For the July-September quarter as a whole, factory production was down 0.6%, and production for all industries was flat--the worst showings since January-March 1991.

“We have what could well turn out to be a full-blown recession in manufacturing,” said economist Robert Dederick of Northern Trust Co. in Chicago. “The economy is struggling to maintain its equilibrium, and the manufacturing sector is downright weak.”

Despite the lack of price increases, the average American worker’s weekly earnings, adjusted for inflation and seasonal fluctuations, still dropped 0.6% last month because the number of hours worked declined, the Labor Department said.

Prescription drug costs increased 0.7% last month and have risen at a 5.4% rate so far this year, the CPI report showed.

Energy prices fell 1.3% in September, pulled down by a 2% drop for gasoline and smaller declines for fuel oil, electricity and natural gas.

Food prices were unchanged last month. Pork costs fell 1.4%, the largest drop in nine years. Fruit, vegetable and coffee prices also decreased.

Tobacco prices jumped 3.3% as companies seek to recoup the cost of multimillion-dollar liability lawsuits.

Clothing costs, heavily influenced by increasingly inexpensive imports from Asia, fell 0.7%, the largest decline in 19 months.