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Output Dips for 5th Month in a Row

Economy: Drop in consumer price index adds fuel to speculation of another Fed rate cut.

January 17, 2002|CAREN BOHAN | REUTERS

WASHINGTON — U.S. industrial output shrank for a fifth straight month in December and consumer prices fell, according to two reports Wednesday that highlighted the U.S. economy's fragility.

The Federal Reserve's closely watched gauge of industrial production dropped 0.1% in December, after a 0.4% decline in November.

The latest drop capped a year in which industrial output plunged 3.9%, the biggest fall since 1982.

A separate report from the Labor Department showed a 0.2% drop in U.S. consumer prices, which was led by plummeting energy costs.

Excluding food and energy, the closely watched core consumer price index rose 0.1%.

"If we add up all the statistics we've gotten recently, they are still reflecting the economy was in a recession in December," said Brian Fabbri, chief economist at BNP Paribas in New York. "The outlook ... is the production side of the economy will probably start to improve in the first half of the year."

The two economic reports bolstered already widespread expectations for a cut of a quarter of a percentage point in short-term interest rates when the Federal Reserve meets Jan. 29 and 30.

Although some data trickling in have offered hope, Fed Chairman Alan Greenspan has warned that dangers remain and it is too soon to feel confident about a return to steady growth.

The data offered a reminder of the weaknesses that still exists.

Businesses in December ran at 74.4% of capacity, down from 74.5% in November and the lowest level since April 1983.

The 0.1% drop in industrial output contrasted with economists' expectations for an unchanged reading from November.

The report contained a few hints of strength, mostly in the auto and high-tech sectors. Auto production rose for a second straight month to a 12.33-million-unit annual rate. Economists were not surprised to see that inflation is soft.

During all of 2001, the CPI was up only 1.6%, the smallest gain since a 1.6% rise in 1998. The core CPI rose 2.7% last year.

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