Factory output shows decline
A spreading U.S. economic slowdown seeped into factory activity in February and March as waning demand more than offset the export benefits of a cheaper dollar, a series of reports showed Monday.
A Federal Reserve report on industrial output showed that factories were running at their slowest rate in more than two years during February while a key gauge of factory business in the northeastern U.S. slumped to a record low in March.
Taken together, the reports reinforced concerns that the world’s largest economy stalled during the first quarter and was in an actual downturn.
The New York Fed said its so-called Empire State gauge of general business activity plunged in March to a record minus 22.23 from minus 11.72 in February, far worse than analysts had expected, as was the case with the broader industrial production report.
The Fed report showed overall industrial production by the nation’s mines, factories and utilities fell an unexpectedly steep 0.5% in February. That followed a slight 0.1% January gain and was the biggest decline in total output since October.
The stress on factory businesses showed up in manufacturing activity, with output falling 0.2% in February after being flat in January. That left the manufacturing sector running at 79.3% of total operating capacity, the lowest rate since 79.2% in October 2005.
“The implication for the economy is that the manufacturing sector, even though it benefits substantially by a weaker dollar, is in decline, hurt by a domestic slowdown,” said economist Cary Leahey of Decision Economics Inc. in New York.
“This report is saying that the economy is in recession in the first quarter,” Leahey added.
A separate Treasury Department report showing that net overall capital inflows to the United States fell sharply in January underlined foreigners’ skepticism about the direction of the U.S. economy.
Inflows dropped to $37.4 billion from $72.7 billion in December -- not enough to cover the month’s $58.2-billion trade deficit with the rest of the world and therefore likely to maintain pressure on a steadily sliding U.S. dollar.
The only glimmer of hope came in a report from the Commerce Department showing a modest improvement in the broadest gauge of total U.S. trade with the rest of the world.
Soaring U.S. deficits are cited by academic economists as a root cause of deepening problems in the economy because it reflects U.S. consumers’ propensity to spend rather than save and to borrow endlessly from abroad to finance their spending.
The U.S. current account deficit narrowed in the fourth quarter to $172.9 billion from a revised $177.4 billion in the third quarter, the Commerce Department said.
