Sun, Sep 16, 2001 page11

• Production in US falls for 11th consecutive month

  ECONOMY America hasn't seen such a prolonged slowdown in manufacturing since 1990. Tuesday's terrorist attack is predicted to only make matters worse

  • BLOOMBERG
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  US industrial production fell in August for an 11th straight month, suggesting a fragile economy that may weaken more as the effects of the worst terrorist attack in history takes its toll on business.

  The 0.8 percent drop in the Federal Reserve's measure of work performed at factories, mines and utilities followed a 0.1 percent decline a month earlier. Until August, production hadn't fallen for so many months in a row since the February-through-December period in 1960.

  The attacks Tuesday have already interrupted work at Ford Motor Co and may lead to reduced consumer spending, suggesting factories will be hard pressed to pull out of their slump.

  Consumer optimism fell to an 8 1/2-year low this month, sapped by rising unemployment, according to a survey taken before the destruction of the World Trade Center in New York and damage to the Pentagon in Washington.

  Manufacturing ``was in full retreat as we entered September, and recent events will only make things worse,'' said Joel Naroff, president of Naroff Economic Advisors in Holland, Pennsylvania. Yields on Treasury securities fell on expectations that Fed policy makers will cut the overnight bank lending rate for an eighth time this year to keep the economy out of recession.

  The death of thousands at the World Trade Center and the Pentagon occurred just as the economy was struggling to recover from the weakest quarter in eight years. A report from the Commerce Department showed that retail sales increased 0.3 percent in August, the largest gain in six months, after rising 0.2 percent in July.

  With retail outlets such as Minnesota's Mall of America closed part of this week, the likelihood of a consumer-led rebound has become slimmer. The mall, with more than 500 stores and average daily sales of US$2.36 million, never opened on Tuesday. May Department Stores Co closed stores in Boston, Chicago, New York, Philadelphia and Pittsburgh.

  People who stayed home by choice or because of canceled flights kept away from Internet merchants as well, most likely because people were glued to their TV sets, analysts said. The research company BizRate.com Inc said online sales fell Tuesday to US$56.3 million from Monday's US$92.4 million.

  "The shock of this week's events will hurt consumer spending in September and October at least and elongate the economic slump," said Peter Kretzmer, an economist at Banc of America Securities LLC in New York. Weaker spending going into September had already led Furniture Brands International Inc, Spiegel Inc, and Pier 1 Imports Inc. to lower sales forecasts.

  Inflation except for oil prices poses little threat and gives the Fed room for rate cutting, a report from the Labor Department suggests. Cooling demand has made it difficult for companies to charge more. Producer prices excluding food and energy dropped 0.1 percent in August, the report showed. The decline, the first in six months, was led by a record decrease in computer costs. The index including all prices included rose 0.4 percent after a July drop of 0.9 percent that was the largest in almost eight years.

  Fed policy makers have lowered their target for the overnight interest rate between banks seven times since the start of the year to keep the economy from faltering. At 3.5 percent, the rate is the lowest in seven years.

  Central bankers are likely to lower the rate again at or before their meeting on Oct. 2. The fed funds futures contract for October has an implied yield of 2.85 percent -- more than a half percentage point below the current rate.

  The economy grew at a 0.2 percent annual rate in the second quarter, the slowest in eight years. Expectations of further rate cuts pushed down the yield on the two-year Treasury note 11 basis points to 2.87 percent.

  The production report also showed that industry operated at 76.2 percent of capacity in August. That's the lowest since July 1983, when the plant-use rate was 76.1 percent and is down from a revised 76.9 percent in July.

  Analysts had expected production to fall 0.3 percent last month. Analysts expected a plant-use rate of 76.6 percent, after July's previously reported 77 percent. Work at factories, which account for almost 90 percent of industrial production, fell 1 percent last month after being unchanged in July and declining 1.2 percent in June.

  Production of durable items such as automobiles, home electronics, appliances and furniture fell 1.2 percent after rising 0.1 percent in July. Production of motor vehicles and parts fell 2.7 percent in August after increasing 4.9 percent in July.

  Production of non-durable consumer goods, which include food, clothing and beverages, fell 0.7 percent last month after dropping 0.1 percent.

  Ford halted production at two Michigan factories this week because heightened security at the US-Canada border had delayed parts deliveries.

  The World Trade Center's twin towers collapsed Tuesday after two hijacked commercial airplanes smashed into what were New York's tallest skyscrapers. Another hijacked plane crashed into the Pentagon on the edge of Washington. A fourth crashed near Pittsburgh.

  Ford shut assembly plants in Wayne and Dearborn, Michigan, spokeswoman Della DiPietro said yesterday. About 3,000 workers were affected at Wayne, where metal-stamping operations continued, and about 1,900 employees at Dearborn. DiPietro said she didn't know when vehicle production at the factories would resume and the company didn't have an estimate on how much production will be lost.

  Previously, Ford reduced third-quarter production by 12 percent from last year to 930,000 vehicles as US demand slowed.

  Ford said it lost production of 12,000 vehicles Tuesday.

  For your information

  Bad numbers

  * The US economy grew at a 0.2 percent annual rate in the second quarter, the slowest in eight years. * Friday's production report showed that industry operated at 76.2 percent of capacity in August, the lowest level since July 1983.
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