Industrial production in the U.S. rose in January as unusually cold weather pushed up utility use, while output at factories was flat after two months of gains.
Production at factories, mines and utilities increased 0.1 percent for a second straight month, matching economists' forecasts, Federal Reserve figures showed today. Manufacturing, which accounts for four fifths of industrial production, was unchanged from December after a 0.2 percent gain.
Output may weaken as the housing recession, now in its third year, pulls down other industries, with Americans cutting back on purchases of items such as furniture, appliances and autos. A manufacturing gauge for the New York region unexpectedly contracted for the first time in almost three years, a separate report showed today.
“The economy is clearly softening,'' Alan Gayle, senior investment strategist at Trusco Capital Management in Richmond, Virginia, said in an interview with Bloomberg Television. “We're starting '08 with modest, if any, economic momentum.''
The Federal Reserve Bank of New York's general economic index fell to minus 11.7, the first negative reading since May 2005, from 9.0 in January, the bank said today. Readings below zero signal contraction.
Treasury notes rallied as today's figures reinforced investors' expectations that the Fed will keep lowering interest rates. Fed Chairman Ben S. Bernanke yesterday told lawmakers that the central bank is ready to act “as needed'' to address risks to growth.
Lowest Since 2004
Two-year note yields dropped as low as 1.82 percent, the lowest level since 2004, and were at 1.86 percent at 9:28 a.m. in New York. Interest-rate futures show traders anticipate at least a half-point Fed rate cut by the March 18 meeting, to 2.5 percent.
Economists had forecast industrial production would rise 0.1 percent after the unchanged reading previously reported for December, according to the median of 79 estimates in a Bloomberg News survey. Projections ranged from a drop of 0.2 percent to a gain of 0.5 percent.
“Manufacturers are clearly struggling under the pressure of slower consumer demand and a much more cautious corporate sector,'' said Russell Price, senior economist at H&R Block Financial Advisors in Detroit. “Exports are still a positive for the sector but clearly they are not enough to offset these other factors. The Fed still has more work to do.''
Capacity Use
Capacity utilization, which measures the proportion of plants in use, was unchanged in January at 81.5 percent, the report showed. Capacity utilization was forecast to fall to 81.3 percent. The rate has averaged about 81 percent over the last 30 years. Higher rates raise the risk of bottlenecks in production that can push up prices.
Utility production rose 2.2 percent after falling 0.2 percent the prior month, the report showed.
The average temperature in January was 30.5 degrees Fahrenheit, 0.3 degree below the mean temperature for that month in the 20th century, according to the National Climatic Data Center in Asheville, North Carolina. The Northeast was hit by blizzard conditions at the end of the month as a storm system spread freezing air and wind gusts from Washington to Boston http://payday-faxless.com.
Mining output, which includes oil drilling, fell 1.8 percent last month, the Fed said today.
Consumer Goods
Production of consumer goods rose 0.3 percent after no change in the prior month. Automobiles and parts production fell 1.3 percent after a 0.2 percent gain, the report said. Output of computers and peripheral equipment advanced 1.3 percent after a 1 percent gain.
Economic growth slowed to a 0.6 percent pace in the fourth quarter, and the economy lost jobs in January for the first time in more than four years. Economists surveyed by Bloomberg News this month indicated even odds that the economy will enter a recession this year.
Citing a worsening outlook, the Fed lowered its benchmark interest rate by 1.25 percentage point during two meetings over nine days in January, the fastest rate reduction since the federal funds rate became the main policy tool around 1990. Economists forecast another half-point cut in March.
Cars and light trucks sold at a 15.2 million annual pace in January, the worst showing since October 2005, industry figures showed. Economists for General Motors Corp., Ford Motor Co. and Chrysler LLC said Jan. 15 that U.S. sales of cars and light trucks may fall for a third straight year in 2008.
`Challenging Year'
“This is going to be a challenging year for the auto industry,'' said Paul Traub, a Chrysler economist, at a conference in Detroit last month.
Today's report showed that construction supplies dropped 1.1 percent in January after a 1.1 percent increase in December. Gains in business equipment slowed to a 0.4 percent pace from 0.9 percent the previous month.
Exporters are helping to keep manufacturing from a deeper slump. General Electric Co. said fourth-quarter profit rose 15 percent on higher international sales of jet engines and power- plant turbines, drawing more than half its annual revenue from overseas for the first time.
GE Chief Executive Officer Jeffrey Immelt's push into global markets was led by a 30 percent jump in the GE Infrastructure group's sales, as developing countries built cities, hospitals and airports, and the dollar weakened.
`Need for Power'
“Every place we went there's a need for power, there's a need for planes, there's lots of capital being invested, and there's just no sign this global infrastructure boom is slowing at all,'' Immelt told a conference call Jan. 18.
The trade deficit shrank more than forecast in December and showed the first annual drop since 2001 as the faltering economy eroded demand for imported autos and Chinese-made consumer goods, a report showed yesterday.
The gap narrowed 6.9 percent from November to $58.8 billion, the Commerce Department said. Imports fell 1.1 percent, while exports increased 1.5 percent, aided by stronger growth abroad.
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