U.S. industrial output turned in another weak reading in September as auto production dropped sharply and housing-related industries continued to face lackluster demand.
The Federal Reserve reported Tuesday that industrial output edged up 0.1 percent in September following no change at all in August. The August reading had been reported a month ago as a stronger 0.2 percent gain.
Stocks fell on Wall Street for a second straight day as investors worried not only about weak industrial production but also surging oil prices, which hit a new record above $88 per barrel, and further signs of trouble in housing. The National Association of Home Builders reported that builder confidence fell to an all-time low of 18 in October. The index had been at 20 in September.
The Dow Jones industrial average dropped 71.86 points to close at 13,912.94.
The concern is that the deep slump in housing and a severe credit crunch will trigger further cutbacks in industrial production as businesses grow cautious about the future.
Federal Reserve Chairman Ben Bernanke said Monday night the housing slump would be a “significant drag” on the economy into next year and he predicted that it will take time for financial markets to fully recover from the credit crisis that erupted in August.
Many analysts believe the Fed, which cut a key interest rate for the first time in four years at its September meeting, will follow up with further rate cuts to make sure the economic troubles don't push the country into a recession. The Fed's next meeting is Oct. 30-31.
The report on industrial output showed that production of autos and auto parts fell a sharp 3.3 percent in September following a 1.6 percent drop in August. Part of the September weakness was blamed on the brief two-day strike at General Motors.
All of manufacturing posted a small 0.1 percent increase in September after a sharp 0.4 percent drop in August. That weakness followed solid gains of 0.6 percent in June and 0.8 percent in July.
The nation's utilities saw output decline by 0.1 percent in September after a 4.6 percent surge in August that had reflected a heat wave that hit much of the country.
Output in mining, a category that includes oil production, edged up 0.2 percent in September, a rebound following a 0.6 percent drop in August.
Analysts believe that U.S. factories will be under pressure in the months ahead, reflecting waning demand for domestic-made cars and weakness in housing-related industries.
“Global strength should continue to produce strong enough export demand to keep the U.S. manufacturing recovery alive, but mounting risks to the economic outlook will keep the pace of factory output subdued,” said Cliff Waldman, an economist for the Manufacturers Alliance/MAPI.
Nigel Gault, an economist at Global Insight, said auto manufacturers have been busy cutting output in an effort to keep inventories under control in the face of weak demand this year while housing-related sectors such as wood products and furniture have suffered because of the severe downturn in housing.
“Solid export demand should support other sectors, especially capital goods, and prevent a more severe manufacturing slowdown,” he said, predicting that manufacturing growth of 4 percent in the third quarter would slip to growth of just 1.2 percent in the current quarter.
With the tiny increase in output in September, the nation's factories, mines and utilities operated at 82.1 percent of capacity, unchanged from August.
