Auto Cutbacks Push Industrial Output Down By Largest Amount in 17 Months

Industrial output fell in January by the largest amount in 17 months, reflecting huge cutbacks at auto factories.

The Federal Reserve reported Thursday that output at the nation's factories, mines and utilities was down 0.5 percent in January, the biggest setback since Hurricane Katrina disrupted activity in the fall of 2005.

Half of the decline last month reflected a drop of 6 percent in output at auto and auto parts factories. Overall, manufacturing fell by 1.2 percent.

In addition to the cuts in the auto industry, output in the mining sector, which includes oil production, fell by 1.2 percent in January.

The declines were offset somewhat by a 2.3 percent rise in utility output as the unusually mild weather of December was followed by more normal winter weather in January, boosting electricity and natural gas output.

In other economic news, the Labor Department reported that the number of newly laid off workers jumped last week, reflecting in part the frigid weather in many parts of the country.

Jobless claims rose to 357,000 last week, the highest level since late November. The increase of 44,000 claims from the previous week was the biggest one-week increase since Sept. 10, 2005, when claims soared in the aftermath of Hurricane Katrina hitting the Gulf Coast.

The four-week moving average for claims rose to 326,250 last week, the highest level in nine weeks and an indication that conditions in the job market have softened.

Part of the increase in jobless claims last week was due to a blast of cold in the Midwest and Northeast, which triggered higher layoffs in such industries as construction.

Many analysts believe that the unemployment rate, which edged up from 4.5 percent to 4.6 percent in January, will keep rising to perhaps a peak of 5 percent later this year as the economy slows under the impact of previous credit-tightening by the Federal Reserve.

The Fed pushed a key interest rate up from a 46-year low of 1 percent to the current 5.25 percent during a two-year period, with the last rate hike occurring in June 2006.

Fed Chairman Ben Bernanke, delivering the central bank's latest economic forecast to Congress this week, indicated that the Fed is likely to hold rates steady as the slowing economy works to lower inflation pressures.

Many analysts believe the Fed is on the verge of achieving its hoped-for soft landing in which growth slows enough to lower inflation pressures without triggering a recession.

The rise of 44,000 claims to 357,000 last week followed a smaller increase of 5,000 in the previous week.

In the week ending Feb. 3, 38 states and territories reported declines in benefit applications while 14 had an increase and one had no change. The state figures, unlike the national data, are not adjusted for seasonal variations.

The states with the biggest declines in jobless claims for the week of Feb. 3 were Missouri, down 3,250, reflecting fewer layoffs in construction; South Carolina, down 2,494, with fewer layoffs in manufacturing; and Pennsylvania, down 2,154, with fewer layoffs in textile, clothing and furniture manufacturing.

The states with the biggest increases in claims were Virginia, up 2,286, and Michigan, with an increase of 1,336, which was blamed on higher layoffs at auto plants.