U.S. Economy: Production Falls as Companies Cut Stockpiles http://www.bloomberg.com/apps/news?pid=20601087&sid=ag0y8a11p8Xg&refer=home By Joe Richter Feb. 15 (Bloomberg) -- Industrial production in the U.S. fell last month by the most in more than a year as companies delayed new orders while working off stockpiles of autos and building materials. Production at factories, mines and utilities dropped 0.5 percent after a 0.5 percent December increase, the Federal Reserve said today. The report also showed a decline in the plant-use rate to the lowest in almost a year, which may help contain inflation. The figures are consistent with Fed Chairman Ben S. Bernanke's prediction yesterday that excess inventories, especially at auto dealers, may limit manufacturing early this year. Production may subsequently pick up, economists said. A separate report from the New York Fed showed manufacturing in the state expanded more than forecast this month. ``A lot of producers are biting the bullet and clearing out inventories now rather than waiting for a surge in demand,'' said Brian Bethune, an economist at Global Insight Inc. in Lexington, Massachusetts. ``We should see companies start to get a better handle on inventories this month and next, which will help production. That's consistent with what the Empire report is showing.'' Economists had forecast no change in January production, and traders pushed bonds higher. The yield on the benchmark 10- year note declined 4 basis points to 4.69 percent at 9:57 a.m. Lower Plant-Use Rate Capacity utilization, which measures the proportion of plants in use, declined to 81.2 percent in January from 81.8 a month earlier. The decrease suggests a diminishing threat of production bottlenecks that can lead to faster inflation. The figure may provide some comfort to Bernanke, who said yesterday that ``resource utilization is high'' and ``above their long- term average.'' The slowdown in manufacturing, along with cheaper energy, is helping keep a lid on inflation. The Labor Department said today that prices of goods imported to the U.S. fell in January by the most in three months. The 1.2 percent decrease reflected lower crude oil and natural gas costs and followed a 1.1 percent gain. The labor market may also be starting to strain from the weakness in manufacturing and housing, a Labor Department report showed today. First-time jobless claims jumped 44,000 last week, the most since September 2005. Some of the increase was a reflection of winter storms that swept through parts of the nation. An increase in the number of people continuing to collect jobless benefits in the prior week shows more than inclement weather may be behind the recent weakness. `Getting Softer' ``Some of the rise was due to the weather, but the bulk of it suggests that the labor market is getting softer,'' said Kevin Logan, senior market economist at Dresdner Kleinwort in New York. ``The overall slowdown in housing and manufacturing is leading to some softness in the labor market.'' The drop in industrial production was the biggest since a 1.6 percent decline in September 2005 following Hurricane Katrina. Manufacturing, which accounts for about four-fifths of the industrial production, fell 0.7 percent last month after rising 0.8 percent the prior month. Excluding autos, production fell 0.7 percent, erasing the rise in December. Capacity utilization was forecast to drop to 81.7 percent, according to the Bloomberg News survey. Projections ranged from 81 percent to 82 percent. Plant operating rates, an indication of factories' ability to produce goods with existing resources, have averaged about 81 percent over the last three decades. New York Manufacturing A separate Fed report today showed manufacturing growth in New York state accelerated this month. The Federal Reserve Bank of New York's general economic index rose to 24.4 in February from 9.1 the month before. A number greater than zero signals expansion. The Fed's industrial production report showed that utility output rose 2.3 percent after declining 2.7 percent in December. Temperatures in the last two weeks of the month dropped as much as 40 degrees Fahrenheit in some parts of the country, according to Planalytics Inc., a Wayne, Pennsylvania-based weather consulting firm. Mining output, which includes oil and natural gas production, fell 1.2 percent last month after rising 1.4 percent. Output of consumer durable goods, including automobiles, furniture and electronics, fell 2.4 percent in January, after rising 1.5 percent in December. U.S. Automakers Last year, automakers General Motors Corp. and Ford Motor Co. announced plans to close a combined 28 plants and other facilities in North America as they aligned their production base with shrinking consumer demand. Ford sales in January fell 19 percent, and GM dropped 17 percent, prompting a deeper cut in GM's North American production. GM is ``tweaking inventories on some vehicle lines that are a bit higher than what we would like,'' Paul Ballew, executive director of global market and industry analysis at the Detroit- based carmakers said on a conference call with investors Feb. 1. High inventories at Detroit's automakers make for ``an intensely competitive marketplace,'' said Michael Jackson, chief executive officer of AutoNation Inc., the largest U.S. auto retailer, in a Feb. 7 interview. Moline, Illinois-based Deere & Co., the world's largest maker of farm equipment, said earnings during the quarter ended Jan. 31 unexpectedly rose as the company tightened inventory and offered more new machines and services. Chief Executive Officer Robert Lane took steps to avoid excess inventory. Deere said in November it would cut production 4 percent during the quarter to help counter a slump in construction machinery sales. To contact the reporter on this story: Joe Richter in Washington at Jrichter1@bloomberg.net