WASHINGTON — Production at the nation's factories, mines and utilities slumped sharply in November, the Federal Reserve said Monday, prompting warnings that the economy was on the brink of falling back into recession.
"It's a petered-out expansion and now it's showing signs of outright decline, of reversal," said Robert Dederick, chief economist for Northern Trust Co. in Chicago.
The Fed, the nation's central bank, said industrial production dropped 0.4% last month, with nearly every major category of manufacturing activity contracting from October.
The drop--far above economists' expectations of a 0.1% decline--left the industrial sector running at 79.1% of capacity last month, the lowest operating rate since May, when some analysts said the economy was just starting to grow after a yearlong recession.
Fed policy-makers are to meet in Washington today and are expected to consider lowering interest rates again.
The industrial production report--along with other recent signs that economic growth is flagging--will probably tip the Fed toward cutting rates again quickly, analysts said.
"These are the sort of numbers that, if they don't pry another move out of the Fed, it's hard to say what will," Dederick said.
The Fed has repeatedly cut rates during the past 18 months to make credit cheaper and spur consumers and businesses to spend. But the cuts have failed to produce a sharp pickup in demand, as consumers remain worried about their jobs.
Last month's drop in production followed a flat October--a weak start for the fourth quarter, which means that the nation's economy is at risk of contracting again after growing at a sluggish 1.7% annual rate in the third quarter.
The Fed has lowered its trend-setting discount rate five times in the past year. The last cut, on Nov. 6 to 4.5%, brought that rate it to its lowest in 18 years.
Dederick said he expects the Fed to cut the discount rate another half a point to 4% and move to lower the federal funds rate another quarter-point to 4.25%.
The Fed last lowered the fed funds rate, which banks charge one another for overnight loans, on Dec. 6, after a weak government report on November employment.
In its report Monday, the Fed said factory production shrank 0.5% last month after a flat October. The slump was especially severe at plants making durable goods, where output contracted 0.9% after a 0.1% October fall.
One reason for the sharp drop was weak auto sales, which prompted car makers to scale back assembly rates last month. A strike at Caterpillar Inc., a major producer of earth-moving equipment, also hurt November production.