Production numbers weak; inflation unlikely

First Posted:

MARTIN CRUTSINGER and JEANNINE AVERSA AP Economics Writers
WASHINGTON — Stalled factory production in October signals that consumers and businesses remain cautious in their spending, with the economic recovery likely to be sluggish.

At the same time, the weak economy is taming inflation. Wholesale prices rose less than expected last month, giving the Federal Reserve more leeway to keep interest rates low to try to spur a stronger economic rebound.
Industrial production edged up 0.1 percent last month, the Fed reported Tuesday. It was the poorest showing since output fell 0.4 percent in June. Since then, industrial output had posted strong gains, helped by a rebound in auto production.
But auto output slipped 1.7 percent last month. That helped drag down total factory output, the biggest portion of industrial production.
Analysts say industrial production should post modest gains in coming months, consistent with their view that the economy has begun to recover from the worst recession since the 1930s. But they cautioned that the rebound in manufacturing, just as in other sectors of the economy, will be slow and halting.
“We are still dealing with a number of headwinds,” said Sal Guatieri, senior economist at BMO Capital Markets. “Consumers are facing high joblessness and the need to pay down debt further. And other sectors including housing and commercial real estate remain under stress.”
Overall industrial production would have fallen except for a 1.6 percent surge at utilities. That gain reflected an unusually cold October that boosted electricity production. Output in the mining sector, which covers oil and gas drilling, dipped 0.2 percent.
The government next week will revise its initial estimate that the overall economy, as measured by the gross domestic product, grew at an annual rate of 3.5 percent in the July-September quarter. But weaker-than-expected reports in retail sales, foreign trade and industrial output, suggest that GDP is likely to be revised lower for the third quarter and remain modest next year.
Nariman Behravesh, chief economist at IHS Global Insight, said he expects GDP to be trimmed to around 2.8 percent for the third quarter, then slip to 2.5 percent in the current quarter. Some analysts predict GDP growth will slip to around 1.5 percent in the first half of next year, a pace that will not be fast enough to keep unemployment from rising further.