Factory output falls
WASHINGTON (AP) – Big industry, in a muddled wartime climate, throttled back production in March, highlighting a sore spot for the struggling economy. The Federal Reserve reported Tuesday that output at the nation’s factories, mines and utilities fell 0.5 percent, the biggest one-month drop since December and the second month in a row that industrial production went down.
“While general uncertainty regarding the conflict with Iraq no doubt had an effect on last month’s numbers, the lethargic recovery is not an aberration,” said David Huether, chief economist at the National Association of Manufacturers. The manufacturing sector has been the weakest link hindering the economy’s full recovery from below-par growth.
Trying to cope with lackluster demand from consumers and businesses, manufacturers have slashed jobs for 32 months in a row and are operating well below capacity. Operating capacity at factories fell from 73.1 in February to 72.9 in March, the lowest reading since May 1983.
At factories, which account for the most industrial output tracked by the Fed, production went down by 0.2 percent in March, on top of a 0.3 percent decline in February.
Weakness was widespread in March, as output fell in automobiles, home electronics, appliances, furniture and carpeting, machinery, metals and wood products.
“March was another tough month for the industrial sector,” said Daniel Meckstroth, chief economist for the Manufacturers Alliance/MAPI, a research group. “There were big ups and downs in energy prices and the threat of war played havoc on business psyche.”
President Bush, who doesn’t want the economy’s woes to linger into his 2004 re-election campaign, demanded on Tuesday at least $550 billion in tax cuts over 10 years to revive the economy. Bush originally proposed a $726 billion package, but that ran into resistance on Capitol Hill.
The 0.5 percent decline in total industrial production reported for March was exaggerated by a 4.1 percent drop in output at gas and electric utilities as a return to more normal weather and higher energy prices prompted people and companies to cut back, economists said. In February, utility output went up by 1.3 percent, stoked by harsh winter weather.
Output at mines, meanwhile, rose by 0.6 percent in March, following a 0.4 percent February gain.
Tuesday’s report highlights one of the difficulties facing the industrial sector: trying to gauge customers’ appetites during these clouded economic times.
Profit-pressed businesses and battered manufacturers have been reluctant to make big investments in capital projects or in hiring, a major factor restraining economic growth.
Since falling into recession in 2001, the economy has struggled to get back on firmer footing. Instead, it has suffered through a pattern of uneven economic growth, with a quarter of strength followed by a quarter of weakness.
That climate has made it difficult for companies to decide to lock in big financial commitments.
Federal Reserve policy-makers decided in March to leave interest rates at a 41-year low of 1.25 percent, saying that such superlow rates should help energize the listless economy.
Some economists believe the Fed probably will keep rates at that level in the months ahead.
With the war in Iraq appearing to be winding down, economists’ focus is back on trying to get a feel for the economy’s true fundamentals. That picture has been blurred by the uncertainties of war.
Fed Chairman Alan Greenspan and his colleagues, however, have said they are hopeful that once the war is over, the economy will return to full health.
While businesses have been largely tightfisted in terms of spending and investment, consumers have been more energetic, lured by heavy discounting and free financing, especially on cars and other big-ticket goods.
Consumers, whose spending accounts for two-thirds of economic activity in the United States, have been the main force keeping the economy going.
“I think consumer demand will improve with the all-but-certain end of war,” said Stuart Hoffman, chief economist at PNC Financial Services. “But given the abundance of plant capacity that is not being used, capital spending will be slow to improve.”
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