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Industrial Production, Housing Start Plunge

Posted on: February 19, 2009


By JEANNINE AVERSA, AP Economics Writer – 19 mins ago

Housing StartsWASHINGTON – Big industry production throttled back in January due partly to auto shutdowns, and housing construction tumbled to a record low, weaker-than-expected performances that show the country caught in a worsening economic tailspin.The Federal Reserve reported Wednesday that production at the nation’s factories, mines and utilities fell 1.8 percent last month. Many economists expected a 1.5 percent decline. It marked the third straight month where production was cut back and December’s performance was even weaker than initially reported, plunging 2.4 percent.

Another report from the Commerce Department said construction of new homes and apartments plummeted 16.8 percent in January from the previous month, to a seasonally adjusted annual rate of 466,000 units, a record low. Analysts expected a pace of 530,000 housing units.

Builders are slashing home construction as skyrocketing home foreclosures dump more empty properties on an already glutted market. The reduction in new projects should aid the housing market in the long run as fewer properties for sale help increase competition and stabilize prices for those left on the market.

Applications for building permits, a barometer of future activity, also sank to a record low pace of 521,000 units in January, a 4.8 percent drop from the prior month.

“Another horrible month; more pain ahead,” predicted Patrick Newport, economist at IHS Global Insight.

With damage from the housing collapse piling ever higher, the White House on Wednesday said the government will spend $75 billion to help prevent millions of Americans from losing their homes.

Wall Street rose slightly in midday trading. The Dow Jones industrial average added about 5 points and broader indexes also gained.

The pair of new government reports underscored the growing toll wrought by a trio of crises – housing, credit and financial – that are the worst since the 1930s.

Many economists believe the current January-March quarter will be the worst of the recession in terms of lost economic activity. The economy contracted at a pace of 3.8 percent in the fourth quarter of last year and is probably shrinking at a pace of 5 percent or more now, analysts said.

The economy is expected to remain feeble this year, with unemployment rising, even with the $787 billion stimulus package of tax cuts and increased federal government spending signed into law by President Barack Obama on Tuesday.

The Fed’s report showed that factory production dropped by 2.5 percent in January. Shutdowns at plants making autos and related parts figured prominently in that decline. Output at mines fell 1.3 percent last month, while production at utilities rose 2.7 percent.

With more plants going idle, operating capacity at all industrial outlets dropped to 72 percent in January. That was down from 73.3 percent in December and was the lowest reading since February 1983.

Manufacturers have slashed production and payrolls as they scramble to survive the economic fallout. The collapse of the U.S. housing market has especially sapped demand for all kinds of building materials and equipment, as well as a range for a consumer goods, including furniture, carpet and household appliances.

With consumers in the U.S. and overseas retrenching, manufacturers have been clobbered. Pushed to the financial edge, Detroit automakers General Motors Corp. and Chrysler LLC are racing to restructure in hopes of securing billions more in federal aid.

Meanwhile, tighter lending standards, rising unemployment and fear about the housing market’s future have sidelined buyers, an absence felt acutely by homebuilders such as D.R. Horton Inc., Pulte Homes Inc. and Centex Corp.

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