Not competitive - even at zero % interest rates.
Factories Quiet, Consumers Glum
Fri January 17, 2003 03:28 PM ET
By Jonathan Nicholson
WASHINGTON (Reuters) - Fresh reports on Friday underscored the U.S. economy's fragility entering 2003 and renewed worries over its path ahead, as industrial output stumbled in December and consumers were glum in early January.
The worse-than-expected readings on production, consumer sentiment and international trade raised the possibility of more severe economic weakness than analysts had been anticipating -- a worrisome sign for a Federal Reserve which has characterized the slowing as a temporary ill.
"I think (Fed Chairman) Alan Greenspan's soft patch turned into a pothole," said John Silvia, chief economist with Wachovia Securities in Charlotte, North Carolina.
The Fed said output at U.S. mines, factories and utilities fell 0.2 percent in December, as a result of lower auto production. The amount of usable capacity in operation dipped to 75.4 percent, its lowest level since March 2002.
In a separate report, the Commerce Department said the U.S. trade gap -- the difference between what the United States buys from abroad and what it exports -- ballooned in November, to a record $40.10 billion.
Later, the University of Michigan said its closely watched preliminary monthly gauge of consumer sentiment fell to 83.7 in January from a final reading of 86.7 in December.
The trade and output figures also mean economists will likely shave their estimates of fourth-quarter economic growth, toward the lower end of the 1 percent to 2 percent range. An initial growth estimate is to be released Jan. 30.
"All three pieces of data this morning suggest things aren't as good as we thought," said Avery Shenfeld, senior economist with CIBC World Markets in Toronto.
The steady stream of negative data weighed on stock markets and boosted Treasury bonds. The Dow Jones industrial average shed more than 125 points in afternoon trading, while the Nasdaq composite was off more than 40 points. Treasuries rallied, however, as investors sought safe-haven investments.
TOTTERING CONSUMER?
Silvia said consumer sentiment numbers proved the most worrying release on Friday. With consumer spending driving two-thirds of economic activity in the United States, the report raised the prospect that the main pillar of the economy is under pressure.
Analysts polled by Reuters had expected the sentiment gauge to remain steady.
"I suspect that consumers are more worried about the economy in light of adverse developments -- most notably, the looming war with Iraq, but also the weak labor markets and rising oil prices," said Stephen Stanley, senior market economist with RBS Greenwich Capital in Greenwich, Connecticut.
The Michigan survey is based on telephone interviews with about 300 households around the country on personal finances, business and buying conditions.
FACTORIES FOUNDERING
The chief culprit behind the slide in industrial production was a sharp downshift in auto output after a steep climb the month before. The Fed said auto production tumbled 4.7 percent last month, while overall output excluding autos actually posted a slight gain, rising 0.2 percent.
Analysts polled by Reuters had expected December production to rise 0.3 percent and capacity in use to climb to 75.8 percent.
Anthony Karydakis, senior financial economist with Banc One Capital Markets, said industrial production was still a "one-sector story" because of the large role of autos.
"There had been some stirrings recently suggesting that the manufacturing sector might be emerging from the slump it went into last fall, but this shows that is not the case. And the rest of the economy remains in that soft spot," he said.
For 2002 as a whole, production fell by 0.6 percent -- a smaller decline than the 3.5 percent decline seen in 2001. Still, the Fed said it was the first back-to-back annual decline in output since 1974-1975.
The industrial production report came on the heels of a surprisingly large widening in the U.S. trade gap, which pushed the U.S. dollar lower in currency markets.
Economists warned that the November gap was likely widened by the settlement of a U.S. West Coast port labor dispute that had artificially narrowed the gap in the prior month.
"It appears that after the West Coast dock closures, imports started to flow again," said Gary Thayer, chief economist with A.G. Edwards & Sons in St. Louis.
Another Friday report, from the National Association of Home Builders, also showed some weakness. The NAHB's monthly housing index fell to 64 from December's two-year high of 65. An index reading above 50 shows more builders see sales conditions as good rather than poor. |
