US industrial production posted the biggest monthly decline since 1974 while consumer prices were flat in September, according to reports on Thursday that built a compelling argument for more interest rate cuts to slow a steep economic slide. Adding to the gloom, a survey of Mid-Atlantic factory activity in October plummeted to its lowest in 18 years.
-- CPI flat in September, core price gauge mild
-- Jobless claims drop; 4-week average, continued claims up
-- Mid-Atlantic factory index falls to 18-year low
Industrial production tumbled 2.8 percent last month, the Federal Reserve said, far worse than the 0.8 percent decline that economists had expected. Business equipment production dropped 7 percent, a sign that companies were retrenching as the credit crisis intensified. "Over the last three months, production is down 5.8 percent and is consistent with a recession," John Silvia, chief economist at Wachovia Corp, said in a note to clients.
Falling energy costs helped keep the Consumer Price Index steady, compared to forecasts for a 0.1 percent rise, Labour Department data showed. A separate Labour Department report on claims for jobless benefits indicated employers were trimming payrolls as profits shrink. A survey of Mid-Atlantic factories reinforced the reports of falling industrial output and rising unemployment.
The Philadelphia Federal Reserve Bank said its business activity index slumped to -37.5 in October, the lowest reading since October 1990, from 3.8 in September. The survey's employment index was the lowest since December 2001 and the index of new orders hit the lowest since 1980. The factory survey erased a higher open for US stocks, a day after their worst session since the 1987 crash. Prices for US government bonds, which generally rise in times of economic gloom, erased most of their early losses.
Economists said signs of moderating inflation and a soft job market give the US Federal Reserve room to cut interest rates further to boost the flagging economy. Energy costs declined 1.9 percent in September after a 3.1 percent drop the previous month. Energy services prices, which include costs for natural gas and electricity, tumbled by 3.2 percent, the biggest decline in the 61-year history of the data series.
Gasoline prices fell by 0.6 percent after a 4.2 percent fall in August. The Labour Department's report on claims for state unemployment insurance showed first-time filing fell 16,000 last week, but a spokesman for the department said a federal holiday on Monday may have skewed the jobless claims data. In addition, a four-week moving average that smooths week-to-week volatility hit its highest level since October 2001 in the aftermath of the September 11 attacks, underscoring a weakening labour-market trend.
The number of people remaining on the benefits roll after drawing an initial week of aid in week ended October 4 rose 40,000 to 3.71 million, the highest level since June 2003.
US NET OUTFLOWS EASE Net US capital outflows slumped to $400 million in August from a revised outflow of $33.6 billion in July, as buying by private investors partly offset selling by official sources such as central banks. Total net outflows were earlier reported by the Treasury department at $74.8 billion.
Net long-term capital inflows excluding swaps were $14 billion in August, up from a revised $8.6 billion inflow the previous month. The original figure was earlier reported at an outflow of $8.2 billion. Private inflows climbed to $3.5 billion, after an outflow of $51.8 billion. That helped limit the impact of official selling of US securities totalling $3.9 billion, from purchases of $18.2 billion in July.
Net purchases of US Treasuries edged up to $34.8 billion, from $34.3 billion in July. Japan, the largest holder of US Treasury securities, slightly pared back its holdings of government bonds in August. It held $585.9 billion, down from $593.4 billion in July. China, the second-largest holder, raised its total to $541.0 billion from $518.7 billion the previous month.
Foreigners, meanwhile, sold agency bonds totalling $29.5 billion, after sales of $49.9 billion in July, reflecting the stress the sector had experienced in recent months. The US corporate bond sector also took a hit, with foreign investors selling $13.1 billion in August, sharply higher than sales of $4.2 billion seen the previous month. Foreign investors further shied away from US equities, which showed an outflow of $980 million, from sales of $5.8 billion in July.