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Factory output drops sharply

June data show slowing recovery

Production of automobiles, home-building materials, and processed food all fell in June, the sharpest decline in a year. Production of automobiles, home-building materials, and processed food all fell in June, the sharpest decline in a year. (Jim R. Bounds/Bloomberg News)
By Martin Crutsinger and Daniel Wagner
Associated Press / July 16, 2010

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WASHINGTON — New evidence of a slowing economic rebound emerged yesterday in reports that manufacturing activity is slowing after having helped to drive the early stages of the recovery.

Factory output fell in June, according to a government report. It was the sharpest monthly drop in a year. And two regional manufacturing indexes sank this month.

Production of automobiles, home-building materials, and processed food all fell in June. The data sent stocks falling.

Federal Reserve officials took note of the weakening recovery when they met last month and lowered their forecast for economic growth, according to minutes released Wednesday.

Manufacturing helped boost the economy last year when the recession ended and has since been one of the strongest sectors in the recovery. June’s decline in output was the first in four months. Overall industrial production ticked up for the month, but that was mainly the result of hot weather that increased demand for electricity from utilities.

“Today’s report supports the view that the manufacturing recovery lost some momentum,’’ said Peter Newland of Barclays Capital Research.

The decline in factory output came as new data offered a mixed picture of the recovery. Applications for unemployment benefits fell to 429,000, the lowest level since August 2008, the Labor Department said yesterday. But much of that was the result of seasonal factors. General Motors and other manufacturers skipped their usual summer shutdowns.

Separately, the Labor Department said wholesale prices fell for a third straight month. Prices were pulled down by a drop in energy costs and the biggest plunge in food costs in eight years. But excluding those two volatile commodities, inflation was nearly flat.

The Federal Reserve report on industrial production showed that overall output at the nation’s factories, mines, and utilities rose 0.1 percent in June. It was the fourth straight monthly gain. But factory output — the largest component of industrial production — dropped 0.4 percent.

Adding to concerns in the manufacturing sector were steep drops reported yesterday in the Empire State and Philadelphia Fed Manufacturing indexes.

Economists viewed the reduction in factory output as further evidence that the economy is weakening.