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Industrial Production Declines For 2nd Time In 3 Months

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The Associated Press

Published: May 16, 2008

WASHINGTON - Industrial output plunged in April as factories making everything from autos to heavy machinery felt the adverse effects of the weak economy. Analysts held out hope that production will revive in the second half of the year, helped by the government's economic stimulus checks.

Industrial production dropped 0.7 percent last month, the Federal Reserve reported Thursday, more than double the decline that economists had expected.

Manufacturing output dropped 0.8 percent, with half of that weakness coming from large cutbacks in auto production. Automakers are struggling with falling demand for new cars because of the slumping economy and production cutbacks caused by a strike at a parts supplier for General Motors.

The decline in overall production matched a 0.7 percent decrease in February and followed a weak 0.2 percent increase in March. The nation's industrial sector has been feeling the impact of the slowdown in the rest of the economy, and economists predicted that would continue as weak consumer demand results in rising levels of unsold goods, causing more production cutbacks.

Brian Bethune, an economist at Global Insight, said production will shrink again this quarter, marking the third negative quarter, the longest stretch of weakness in manufacturing since the last recession in 2001.

Bethune predicted a mild rebound for manufacturers starting this summer, when consumers start spending 130 million economic stimulus checks that are being mailed out.

"That extra cash is expected to roll gradually into consumer spending by June," he said, calling the timing "indeed fortuitous."

Many analysts think the $168 billion stimulus program Congress passed in February will not keep the country from toppling into a recession but will make the downturn shorter and milder than it would have been.

Economists said the manufacturing slump would have been more severe had it not been for the decline in the value of the dollar, which has helped boost exports to record levels, offsetting some of the weakness in domestic demand.

"As bad as the industrial downturn may seem, the decline in the value of the dollar and subsequent surge in export orders is a cushion," said Daniel J. Meckstroth, chief economist for the Manufacturers Alliance/MAPI.

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