Weak U.S. output, job market point to recession
WASHINGTON (Reuters) - U.S. industrial output posted its biggest drop since 1974 in September, while a regional factory index slumped this month and labor markets showed softness, suggesting the economy has fallen into recession.
The series of grim reports on Thursday made clear that even if unprecedented government measures to stabilize financial institutions succeed in restoring lending, the underlying economy has been seriously damaged from months of turmoil.
"The data suggests the U.S. economy is mired in recession and things are getting worse rather than better," said Sal Guatieri, an economist for BMO Capital Markets in Toronto.
At the same time, consumer prices held steady last month as energy prices slipped, which could give the U.S. Federal Reserve room to cut interest rates further to lift to an economy that could be facing a protracted slump.
The data pressured stocks in early trade, but shares posted a late rally and the blue chip Dow Jones industrial average .DJI closed up 401 points, or 4.7 percent. On Wednesday, the Dow had suffered its worst day since the 1987 crash.
Production at the nation's factories, mines and refineries tumbled 2.8 percent last month, the Federal Reserve said, far worse than economists had expected. Business equipment production dropped 7 percent, a sign companies were retrenching as the credit crisis intensified.
The Fed said Hurricanes Gustav and Ike, as well as a strike at aircraft maker Boeing (BA.N), "severely curtailed" output. But analysts said even taking those factors into account, a downdraft was unmistakable.
"Over the last three months, production is down 5.8 percent and is consistent with a recession," John Silvia, chief economist at Wachovia Corp, said in a note to clients.
In a further indication of the impact of the credit crunch on the broader economy, a private-sector poll of home builder confidence fell to a record low in October.
A separate survey on factory activity in the Mid-Atlantic region in October also suggested the economy was braking sharply. The Philadelphia Federal Reserve Bank said its business activity index slumped to its lowest level since October 1990.
BRACING FOR TOUGH TIMES
Manufacturing giants United Technologies Corp (UTX.N), Textron Inc (TXT.N), Illinois Tool Works Inc (ITW.N) and Danaher Corp (DHR.N) told investors they were taking aggressive steps to cut costs as they brace for a slowdown, even as sales remained strong.
"We know 2009 is going to be the toughest year we've seen for some time," said Greg Hayes, chief financial officer at United Technologies.
Data on claims for jobless benefits were mixed, but still indicated a soft labor market.
The Labor Department said first-time claims for state unemployment insurance fell 16,000 last week. However, a federal holiday may have skewed the data and a four-week moving average that smooths weekly volatility hit its highest since October 2001, just after the September 11 attacks. ID;nN15335763 Continued...
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