WASHINGTON — U.S. industrial output dipped slightly in April, government figures showed Wednesday, continuing a pattern of little change since mid-1984 and prompting some economists to wonder if a recession will be triggered by the deluge of imported goods.
The Federal Reserve Board will have to decide in the months ahead whether to reduce interest rates to stimulate production, these economists said. At the same time, the new output statistics may increase pressure on Congress to pass protectionist trade legislation to stem the flow of imports.
The latest industrial production figures, released by the Fed, showed a 0.2% drop in April after a 0.3% gain in March.
The most significant decline was registered by durable consumer goods, as automotive products fell by 1.2% in April and home goods such as television sets decreased by 0.8%. Production of business equipment declined 0.3%.
On the other hand, the output of defense and space equipment continued to be strong, gaining 0.7%.
"The industrial-goods producing sector remains under intense pressure stemming from the strong dollar and heavy foreign competition," said Allen Sinai, chief economist for Shearson Lehman Bros., a New York investment firm.
"We have two economies out there," he continued. "The services economy is doing well, but the goods economy is doing poorly. There is no parallel to this in postwar history."
Donald Ratajczak, director of the economic forecasting project at Georgia State University, noted:
"These figures show that American manufacturing is not providing American consumers with their needs. Obviously, import penetration is quite significant."
Both economists said there is a serious question of whether the new figures portend a recession.
"The issue of whether the manufacturing sector is in a recession is a real one," Sinai said. "Manufacturing employment has been down for three consecutive months, and industrial production is lower than last July. The industrial sector is going nowhere, and that weakness is a primary reason why the U.S. economy now is growing so slowly. I doubt whether weakness in the industrial sector can push the whole economy to a recession--but no one can know that for sure."
Ratajczak said: "If we keep getting negative industrial production numbers, that is one of the key indicators of a recession. But two other important factors are retail sales and inventory-to-sales ratios, and those are not problems at this stage."
On the question of whether the Fed will act to lower interest rates, Sinai said it was "a tough call because the whole economy is doing better than is the manufacturing sector."
Ratajczak said he expects the Fed's governors to "watch and wait."
"The weakness in industrial output certainly can't cheer them," he said, "but they'll probably wait around and see if it is more than a one-month problem."