Features

Industrial sector still taking an economic beating

The Associated Press
Wednesday July 18, 2001

WASHINGTON — Manufacturing activity plunged in June for the ninth month in a row as the beleaguered industrial sector continued to suffer heavy damage from the yearlong economic slowdown. 

Production at the nation’s factories, mines and utilities posted the worst showing since January, falling by 0.7 percent last month on top of a 0.5 percent drop in May, the Federal Reserve reported Tuesday. 

The latest snapshot of industrial activity was weaker than many analysts were expecting. They were predicting manufacturing activity would decline by 0.5 percent in June. 

“These numbers don’t provide any evidence that the bottom has indeed been hit in the factory sector,” said Lynn Reaser, chief economist at Banc of America Capital Management. 

Operating capacity sank to its lowest point in nearly 18 years as companies throttled back production in the face of sagging demand. The industrial sector operated at 77 percent of capacity in June, compared with 77.6 percent in May. 

Many economists believe the industrial sector, hardest hit by the slumping economy, has been pulled into a recession of its own. To cope, manufacturers have sharply cut production and shed thousands of workers. 

“It’s clear that the downturn in manufacturing that began last September has been nearly as severe as the 1990-91 recession,” said Jerry Jasinowski, president of the National Association of Manufacturers. 

At factories, output fell by 0.8 percent in June, after a 0.5 percent decline. The weakness was widespread, with production declining for, among other things, cars and trucks, home electronics and appliances, industrial machinery, semiconductors and metal products. Output of computers and office equipment was flat. 

“The manufacturing sector is languishing in pain,” said Stan Shipley, economist at Merrill Lynch. 

The Fed report also said that mining production fell by 0.4 percent in June, after a 0.1 percent decline. But output at gas and electric utilities rose by 0.9 percent, following a 1.7 percent drop in May. 

To stave off recession, the Federal Reserve slashed interest rates six times this year, totaling 2.75 percentage points. The rate reductions lower borrowing costs and are aimed at generating consumer spending and business investment, which would rejuvenate economic growth. 

Fed Chairman Alan Greenspan on Wednesday will provide Congress with his twice-a-year report on the economy. Many analysts believe he will deliver a cautiously optimistic assessment and that he may signal that the Fed’s latest credit-easing campaign may be coming to a close. 

Still, analysts don’t expect Greenspan to close the door on another interest rate cut in the future. They predict he will cite continued risks to the economy, including the ailing manufacturing sector. 

For the April-June quarter, total industrial output fell at an annual rate of 5.6 percent, following a 6.8 percent rate of decline registered in the first quarter. 

Recent economic data have offered mixed signals on the outlook for the industrial sector. 

Earlier this month, the National Association of Purchasing Management reported that a key gauge of industrial activity in June turned in its best performance in seven months. Even with the improvement, the measure was at a level indicating that the manufacturing sector of the economy remained in recession. 

The group’s purchasing index rose to 44.7 percent from 42.1 percent in May. An index above 50 signifies growth in manufacturing, while a figure below 50 shows contraction. June’s 44.7 percent reading was the highest since 47.9 percent in November. 

At the time, analysts were heartened that the index regained some lost ground and were hopeful that the worst of the manufacturing recession may have been over. But Tuesday’s report clouded the picture. 

 

“The question now is when manufacturers will hit bottom and start to work their way out of this economic mess,” Jasinowski said. 

On the Net: 

Industrial production: http://www.federalreserve.gov/releases/G17/