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U.S. Economy: Production Shrinks More Than Forecast

March 17 (Bloomberg) -- Industrial production in the U.S. dropped more than forecast in February as the economic slump deepened even before the crisis in financial markets intensified.

Production at factories, mines and utilities fell 0.5 percent last month, the first decrease in four months, the Federal Reserve said today. A report from the New York Fed showed its manufacturing index dropped to a record low in March.

Factories are cutting back as the biggest recession in housing in a generation prompts Americans to spend less on furniture, appliances and automobiles.
The odds of a full percentage-point reduction in the Fed's benchmark rate at tomorrow's meeting almost doubled as policy makers try to prevent a meltdown in lending that will make the economic contraction even worse.

``The U.S. economy is in a recession and now you have the problems in financial markets that the Fed also has to address,'' said Brian Bethune, a financial economist at Global Insight Inc., a Lexington, Massachusetts, forecasting firm. ``At this point, getting interest rates down as quickly as possible is an antidote for both problems.''

Automakers turned out 1 percent fewer vehicles and parts last month. Manufacturers also reported declining production of appliances and furniture, clothing and construction equipment and materials.

The Fed, trying to ease the credit squeeze, yesterday cut the rate on direct loans to banks and became lender of last resort to the biggest dealers in U.S. government bonds. The central bank said it would also provide up to $30 billion to JPMorgan Chase & Co. to help finance the purchase of Bear Stearns Cos. after a run on Wall Street's fifth-biggest securities firm.

Policy makers meet to consider further moves tomorrow and Global Insight forecasts they will reduce the overnight lending rate between banks by a full percentage point, to 2 percent.

Treasuries rose, and most stocks and the dollar were lower. The Standard & Poor's 500 index fell 0.9 percent to close at 1,276.6 in New York.

The Fed ``needs to move forward with aggressive rate cuts,'' said Jane Caron, chief economic strategist at Dwight Asset Management Co. in Burlington, Vermont, in an interview on Bloomberg Television.

A measure of manufacturing in New York state fell to the lowest level on record in March as new orders and shipments contracted for a second month, the New York Fed reported. The so-called Empire State general economic index fell to minus 22.2 from minus 11.7 in February, the bank said today. Readings below zero signal contraction and the March level was the lowest since the New York Fed's index began in 2001.

Economists had forecast a 0.1 percent decline in industrial production after an originally reported 0.1 percent increase the prior month, according to the median estimate of 59 economists in a Bloomberg News survey. Estimates ranged from a decrease of 0.6 percent to an increase of 0.3 percent.

The amount of capacity in use fell to 80.9 percent, the lowest since November 2005, from 81.5 percent in January, the Fed's production report showed.

Confidence among U.S. homebuilders was unchanged in March near a record low as falling property values and loan restrictions kept buyers at bay, according to a report by the National Association of Home Builders/Wells Fargo. The index held at 20 for a second month, after reaching a reading of 18 in December that was the lowest since records began in 1985.

In a bit of good news today, the U.S. current-account deficit unexpectedly narrowed in the fourth quarter as foreigners earned less on American investments.

The $172.9 billion shortfall, the broadest measure of trade because it includes transfer payments and investment income, was the smallest in three years, the Commerce Department reported. For all of 2007, the gap decreased for the first time since 2001.

Manufacturing, which accounts for about four-fifths of the industrial production report, fell 0.2 percent last month after no change in January. Excluding autos, factory production also fell 0.2 percent.

Factories are in decline as consumer spending falters. Sales at retailers unexpectedly fell 0.6 percent in February, led by declines at auto dealers and restaurants, the Commerce Department reported last week.

General Motors Corp., Ford Motor Co. and Toyota Motor Corp. reported sales dropped in February from a year earlier, according to industry data issued March 3. GM and Ford each announced deeper reductions in production for the second quarter.

Toyota last week announced plans to trim production of full-size Tundra pickup trucks at factories in Texas and Indiana as sales slow.

A strike by GM's biggest supplier of axles is making matters even worse.
The walkout at American Axle Manufacturing & Holdings Inc. will cut gross domestic product by at least 0.2 percentage point this quarter, according to a forecast by economists at Merrill Lynch & Co. in New York. Should the strike last through March, the reduction will be twice as large, they said.

Industrial production is one of the measures tracked by the National Bureau of Economic Research, the official arbiter of when economic expansions begin and end, to help determine the onset of a recession.

Harvard University economist Martin Feldstein, president of the NBER and a member of the committee that dates business cycles in the U.S., said last week that the nation has entered a recession that could be the worst since World War II.

1,891 Posts
Tundra can not be selling well, I see maybe 1 a week tops. Good truck but all truck sales are down and Toyota is not immune.
I wish I could agree with that here. Here I see a new Tacoma each week and a new Tundra quite often as well. Heck I have seen 2 new '08 Sequoias this last week!

Oh well at least the strike with AAM will help trim invintory from GM's lots.
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