By Bob Willis
June 16 (Bloomberg) -- Industrial production in the U.S. fell in May for the 16th time in the last 17 months, reflecting declines in consumer goods and business equipment that signals the manufacturing slump remains broad-based.
Output at factories, mines and utilities decreased 1.1 percent last month, in line with forecasts, after falling a revised 0.7 percent in April, Federal Reserve data showed today in Washington. The amount of industrial capacity in use dropped to a record-low 68.3 percent.
The fallout from bankruptcies at Chrysler LLC and General Motors Corp. may ripple beyond auto-related industries in coming months. Without a rebound in manufacturing, any recovery from the worst economic slump in half a century will take longer to emerge.
“Production is still falling and that can only mean that this recession isn’t over yet,” Chris Rupkey, chief economist at Bank of Tokyo-Mitsubishi UFJ Ltd. in New York, said before the report. “The consumer is still on a buying strike so many companies are scaling back their output to adjust for the reduced demand.”
Economists forecast industrial production would fall 1 percent, according to the median of 74 projections in a Bloomberg News survey, after an initially reported 0.5 percent drop in April. Estimates ranged from a decline of 1.7 percent to an increase of 0.3 percent.
Construction Jumps
Another report showed housing starts and building permits soared in May, signaling the almost four-year slump in residential construction is abating. Builders broke ground on 532,000 homes at an annual pace last month, exceeding forecasts and up 17 percent from April, figures from the Commerce Department showed. Building permits, an indicator of future construction, also climbed more than anticipated.
Stock-index futures held gains following the reports. The Standard & Poor’s 500 contract was up 0.3 percent at 9:24 a.m. in New York. Treasury securities fell, pushing the yield on the 10-year note to 3.74 percent from 3.71 percent late yesterday.
Manufacturing, which accounts for about fourth-fifths of total production, dropped 1 percent after a 0.6 percent decrease in April. Factory production was down 15 percent since May 2008, the biggest 12-month drop since 1946.
Car Production
Motor vehicle and parts production slumped 7.9 percent in May after falling 1.2 percent the prior month, today’s report showed. Declines are likely to continue in coming months after Chrysler and General Motors shut plants to reduce inventories as they headed into bankruptcy.
Chrysler shut all its plants on May 1 to clear as many unsold vehicles as possible from dealer lots while it restructures. The sale of most of Chrysler’s assets to a group led by Italian automaker Fiat SpA was completed last week.
GM, the biggest U.S. automaker, said June 1 it is stopping work at 14 plants as it restructures under Chapter 11.
Excluding automobiles, factory output dropped 0.6 percent for a second month, today’s Fed report showed. Utility production decreased 1.4 percent. Mining output, which includes oil drilling, fell 2.1 percent.
Other consumer goods retreating last month included home electronics, clothing and furniture and appliances.
Production of business equipment declined 1.4 percent. Output of computers and electronics fell 1.1 percent, signaling companies continue to cut investments.
Stockpiles Cut
As orders have tumbled amid the worst recession in five decades, companies have slashed production to lower inventories. Companies trimmed stockpiles in the first quarter at a $91.4 billion annual rate, the biggest drop since records began in 1947, according to figures from the Commerce Department last month. At the time, economists said the drop set the stage for an improvement in economic growth toward the end of the year.
General Electric Co. is among companies starting to see some improvement in economic conditions. Chief Executive Officer Jeffrey Immelt said at a conference last week that government efforts to thaw credit are starting to pay off, making it easier for companies to borrow.
“Capital markets have largely healed,” Immelt said. “As a company, you have to invest now. You have to invest when things are darkest.” Immelt predicted the economic recovery will be slower than that following the 1982 recession, the last slump that approached the severity of the current downturn.
One positive aspect of the excess in capacity is that it will help control inflation should raw-material costs keep rising, economists say.
Producer prices rose 0.2 percent in May, less than forecast and reflecting a drop in food costs, the Labor Department said in an earlier report today. Core costs, which exclude food and energy, dropped for the first time in more than two years.
“The slack in resource utilization remains sizable, and, notwithstanding recent increases in the prices of oil and other commodities, cost pressures generally remain subdued,” Fed Chairman Ben S. Bernanke told Congress on June 3. “We anticipate that inflation will remain low.”
To contact the reporter on this story: Bob Willis in Washington bwillis@bloomberg.net.
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