Strike stalls April auto production

WASHINGTON (Reuters) - A three-month strike at auto parts supplier American Axle & Manufacturing Holdings Inc (AXL.N) helped stall U.S. factory activity in April as already struggling carmakers were forced to cut production further.

The Federal Reserve said on Thursday that U.S. industrial output fell by 0.7 percent in April, more than double the 0.3 percent decrease economists were expecting, as manufacturing activity slid 0.8 percent.

The drop in factory output reflected the biggest decrease in auto production in nearly a decade.

In its report, the Fed pointed to the work stoppage at American Axle, which has led General Motors Corp GM.N to shutter much of its North American production of trucks and large SUVs, as a factor behind the big factory slump.

While the strike led to a steeper fall-off in output than would have otherwise been the case, manufacturing activity slipped 0.4 percent even excluding autos. And, while the auto sector's woes may have looked artificially bleak, carmakers likely would be throttling back production anyway.

Record high gasoline costs are driving down demand for less efficient U.S.-made trucks and sport utility vehicles, reflecting caution on the part of U.S. consumers who in general are shying away from big-ticket items.

"I think even without (the strike), auto sales are declining and the auto industry is going to have to adjust production," said Daniel Meckstroth, chief economist at the Manufacturers Alliance/MAPI. "Consumers are being squeezed from all sides, not only high oil prices but high food prices, and they are being squeezed by the lack of credit."

The 8.2 percent drop in auto production in April followed a 4.3 percent decline in March. With production stalling, inventories at auto dealers fell 0.9 percent in March.

MASS LAYOFFS

The strike at American Axle of some 3,600 workers has had a multiplying effect on the job scene in the U.S. auto sector.

In a separate report on Thursday, the Labor Department said the strike, which started in late February, was a contributing factor behind the lay off of 19,887 workers at other firms in the first quarter.

Ken Mayland, an economist at ClearView Economics in the Cleveland area, said that while the strike was making a bad situation look worse, there was a wider factor pullback underway as businesses clamped down on investments.

"Strikes are a mitigating factor," he said. "The falloff of stock prices through the winter really scared companies and created a fear factor that may have moved them to put manufacturing on hold."

Output of furniture, machinery, electrical equipment, textiles and plastics all fell in April, a sign of how widespread the retrenchment has become.

Mayland warned that the downtrend would likely continue, with economy-shaping factors, such as hiring and capital spending, likely on hold until the dust settles.

"It looks like business has succumbed to the dark side," he said.

HIGHER ENERGY COSTS

While the American Axle strike has cut markedly into vehicle production, higher energy prices are a longer-term worry for the industry, economists say.

"The high price of gasoline is clearly curbing both consumer and business demand for motor vehicles," said National Association of Manufacturers chief economist David Huether.

Meanwhile, the strike at America Axle continues.

The Detroit-based supplier, which relies on General Motors for about 80 percent of its sales, earlier this week said negotiations were snagged on two issues: health-care benefits and supplemental unemployment benefits.

GM has said it lost production of 230,000 units through April because of the strike.

(Reporting By Joanne Morrison; Editing by Clive McKeef)