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Output Dips; Inventories Rise Slightly

Economy: Production slips 0.1%, the first drop since July, and stockpiles increase 0.1%, signaling a cooling trend.


WASHINGTON — U.S. industrial output weakened in October, and businesses grew cautious about stockpiling goods as autumn began, government figures showed, adding to signs the U.S. economy is gradually cooling.

The Federal Reserve said industrial output by mines, factories and utilities fell 0.1% last month, after an upwardly revised 0.4% gain in September.

It was the first drop in monthly output since a 0.2% decline in July, and the second since the beginning of 1999. Manufacturing stalled and utilities output fell.

In a separate report, the Commerce Department said U.S. business inventories rose a slim 0.1% in September, the slowest pace of growth since January 1999, as sales rose 0.4%.

Production for inventories is generally a source of strength for the economy, unless faltering sales cause an overhang that forces sharp and disruptive cutbacks.

The government reports came as U.S. central bank policymakers gathered to consider interest rate strategy. The Fed later said it was keeping rates steady and noted that business and household demand was softening.

Mark Vitner, an economist with First Union Corp. in Charlotte, N.C., said that over the last three months there has been a faster rate of inventory buildup than of sales, which has raised a red flag. "[It] suggests that production will need to be scaled back quite a bit in coming months to bring inventories back in line with slower sales," Vitner said.

There were signs in the more recent Fed report that some companies have begun trimming their production in anticipation of a reduced pace of business activity.

Output weakened during October in a number of industries, from household appliance makers to auto producers. New-vehicle output fell to an estimated annualized rate of 12.2 million, from 13.1 million in September, accounting for much of the October drop. Excluding motor vehicles and parts, October industrial output gained 0.3% on top of a 0.4% September rise.

Most analysts said the output data fit with other reports showing a gradual economic slowing, but did not imply a worrying downturn that would need remedial action by the Fed.

"There is not really anything here that is going to get the Fed alarmed," said economist David Sloan of 4Cast Ltd. in New York. "They have been very happy to see the slowdown in the economy, but the number we see here is not [part of] a hard-landing scenario."

The report on industrial production showed businesses were running at 82.1% of their maximum capacity last month, down from 82.5% in September. It was the lowest rate since 82% in April, meaning there was no danger of production bottlenecks at plants and factories to fan sharp price rises.

Manufacturing output in October was flat, because of the scaling back in autos, after a 0.5% jump in September. Aside from motor vehicles and parts, manufacturers increased their output by 0.5% in both September and October.


Industrial Production

Index; 1992=100; seasonally adjusted:


October: 146.3

Source: Federal Reserve Board

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