Production at the nation's factories, mines and utilities in April dropped for the first time in six months by 0.2 percent, as the strong demand for imports helped push down industrial production.
In the last 12 months, output at the nation's industries has increased only 2 percent, according to the Federal Reserve Board. The April industrial production decline followed a 0.3 percent rise in March and a 0.1 percent increase in February.
In a separate report, the Commerce Department said that business inventories fell 0.1 percent in March, following a 0.5 percent increase in February. Business sales rose 0.4 percent in March, following a 0.3 percent rise in February.
The two reports released yesterday along with other recent government statistics suggested that the penetration of imports into U.S. markets is continuing to hurt manufacturing, which must compete with lower-priced foreign goods.
Additionally, economists said that businesses are trying to reduce their unwanted stocks rather than buy more goods.
The industrial production figures "show the manufacturing sector continues to be under a great deal of pressure from imports," said Steven Wood, economist with Chase Econometrics. Wood said that the economy is still growing and that the weakness in the recent industrial production figures "doesn't mean we're going to have a recession any time soon."
The slight change in inventories in March showed that businesses have inventories under pretty good control, reducing the chance that a large buildup in business stocks would result in a plunge in factory production, Wood said. Production in the next couple of months should be in line with the demand for goods, Wood said.
"The deterioration in our international trade competitiveness has so far been the major drag on industrial production, which has been stagnant since last summer," said Jerry Jasinowski, chief economist for the National Association of Manufacturers. The decline in industrial production last month is "a new development of business beginning to liquidate its inventories, which is likely to hold real gross national product growth to the 2 percent to 2.5 percent range.
"Manufacturing is paying the price of the large budget deficit, high interest rates and the overvalued dollar," Jasinowski said.
Production was up only 2.0 percent from April 1984 as durable output increased 3.8 percent, but production of nondurables declined 0.2 percent in the last 12 months.
The slowdown in manufacturing output has been reflected in the small 1.3 percent increase in real output during the first quarter of this year and the stagnant labor market situation. While the unemployment rate has been stuck at 7.3 percent for the past three months, manufacturing employment has declined by about 100,000.
The April decline in the industrial production index was the first since a 0.4 percent fall in October.
Production of consumer goods fell 0.4 percent last month. The output of durable consumer goods dropped 1 percent, in part because of a 1.2 percent decline in automotive products production. Automobiles were assembled at a slightly lower rate in April than in March, declining from 8.3 million units to 8.1 million units in April, the Fed said.
The production of nondurable consumer goods dropped 0.1 percent in April. Output of business equipment dropped 0.3 percent, the fourth consecutive monthly decline.
Manufacturing output dropped 0.2 percent as durable goods production declined 0.4 percent. Mining production fell 1.5 percent and utility output was virtually unchanged for the last two months following a 2.5 percent increase in February, the Fed said.