Industrial Output Off 0.3% in August

U.S. industrial production unexpectedly dropped in August, the first decrease this year, as companies made fewer autos, appliances and home electronics products.

Production at the nation’s factories, mines and utilities fell 0.3% last month after rising a revised 0.4% in July, twice the rate previously estimated, the Federal Reserve said.

The last time production declined was in December.

“The U.S. economy is losing momentum,” said John Silvia, chief economist at Wachovia Corp. “Businesses are finding out that there just isn’t any forward momentum in orders, and that means the economy may be sloshing around for some time.”

Economists had expected a 0.2% rise in industrial production, following July’s previously reported 0.2% gain.

The plant-use rate fell to 76% last month from 76.2%. That compares with an average 81.8% rate during the record 10-year expansion from March 1991 to March 2001.

The low rate of capacity use suggests that businesses have plenty of room to increase production without building more factories or buying more equipment.

A 2.5% drop in electric and gas utility production accounted for much of the drop in the Fed’s report and followed a 2.4% increase in July. Output from mines increased 0.8% after falling 0.5%.

Work at factories, which makes up about 90% of industrial production, fell 0.1% last month, the first decline this year, after increasing 0.3% in July.

Production of consumer durable goods, which include automobiles, furniture and electronics, fell 0.9% after increasing 2.1% the previous month.

Production of autos and parts fell 1.4% after rising 3.9%. Over the last 12 months, production is up 12% as car and truck sales have risen because of incentives.

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General Motors Corp. sales climbed 18% last month as zero-interest loans and discounts helped clear out 2002 models. Sales by all auto makers rose to an annual rate of 18.7 million, the fastest since October.

Production of business equipment, which includes communications equipment, fell 0.4% last month after decreasing 0.3% in July.

Production of non-durable consumer goods, including food, clothing and paper products, fell 0.4% in August after rising 0.1% the previous month, the report showed.

Manufacturers are producing less and are reducing their work forces.

Factories shed 68,000 jobs in August, the most since January. Manufacturers are adding hours to employees’ workweeks. The manufacturing workweek rose to 40.8 hours from 40.7 in July, and the average amount of worker overtime per week rose to 4.2 hours from 4 hours.

Productivity is rising. Manufacturing efficiency rose 4.3% in the second quarter, after increasing 9.7% in the first three months of the year. The first-quarter gain was the largest since 1982.

Improving productivity is one reason the economy is expected to expand at a 2.7% annual pace in the third quarter, more than twice as fast as the 1.1% growth rate of the previous three months.