Production, Home Building Probably Fell: U.S. Economy Preview

Production, Home Building Probably Fell: U.S. Economy Preview


March 15 (Bloomberg) -- The recession gripping the U.S. deepened last month as factories and home builders scaled back even more, economists said before reports this week.

Industrial output fell 1.3 percent in February, according to the median estimate of analysts surveyed by Bloomberg News before Federal Reserve figures tomorrow. Construction began on the fewest houses on record, a March 17 report from the Commerce Department may show.

The manufacturing and housing slumps will keep Fed policy makers focused on measures to relieve the downturn when they meet March 17th and 18th. Even as other reports this week may show a rebound in fuel costs lifted prices in February for a second month, inflation is unlikely to be a concern for the central bank this year as retailers sweeten discounts to lure back shoppers after spending plunged.

“Demand is very weak, although the primary source is shifting from consumers to businesses,” said Ryan Sweet, a senior economist at Moody’s Economy.com in West Chester, Pennsylvania. “As the recession continues to run its course, deflation risks will grow.” Deflation is a protracted drop in prices that hurts profits and makes it difficult to repay loans.

A decrease in industrial production would be the sixth in the last seven months. The Fed’s report is also projected to show the proportion of plant space in use probably dropped to 71 percent, the lowest since 1982, according to the survey median.

Excess capacity means inflation isn’t a threat, economists say. Consumer prices probably rose 0.3 percent in February for a second month as gasoline prices climbed, according to the survey median before a Labor Department report March 18.

Little Inflation

Core consumer prices, which exclude food and energy, rose 0.1 percent in February after a 0.2 percent gain the prior month, according to the survey.

Prices paid to producers probably rose 0.4 percent in February, after a 0.8 percent gain the prior month, economists forecast another Labor report will show March 17.

Fed policy makers will keep their benchmark interest rate target unchanged at zero to 0.25 percent and discuss additional measures to calm the credit crisis, economists said.

Chairman Ben S. Bernanke and his colleagues are examining whether to expand existing asset-purchase and lending programs or initiate fresh measures, such as buying Treasuries. The central bank’s balance sheet has increased to $1.9 trillion from $891 billion a year ago.

The auto industry is at the epicenter of the manufacturing slump. Auto sales in February slid 41 percent to the lowest rate since December 1981, according to Autodata Corp., led by a 53 percent drop for General Motors Corp. GM last month announced the closings of five more U.S. plants by 2012 as it cuts production to match dwindling demand.

‘Severe’ Crisis

“This remains a very challenged industry that is the reflection of the severe economic crisis,” Mike DiGiovanni, chief auto market analyst at GM, said on a conference call last week.

The U.S. housing recession that triggered the credit crisis and global downturn shows no sign of abating as sales, prices and construction keep falling.

The Commerce report may show housing starts last month fell 3.4 percent to an annual rate of 450,000, the fewest since records began in 1959, according to a Bloomberg survey. Building permits probably fell to a 500,000 annual rate.

Housing-related industries are feeling the pinch. Deere & Co., the world’s largest maker of agricultural equipment, this month said it will cut 325 employees at two Iowa factories to align production with a projected 24 percent drop in construction and forestry division sales.

A report tomorrow from the National Association of Homebuilders may show its builder confidence index held at 9 in March for a second month after dropping to a record low of 8 in January, according to the survey median.

BLOOMBERG