The nation's industrial production fell a substantial 0.6 percent last month, the first decline since the recession ended nearly two years ago, the Federal Reserve reported yesterday.
Part of the drop was a result of the brief strike against General Motors Corp., and most forecasters are confident that no new recession is beginning. Nevertheless, the drop in output at the nation's factories, mines and utilities was larger than analysts had been expecting. The figures highlighted just how much the economic expansion has slowed since mid-year.
Meanwhile, partly as a consequence of that slowing, many major banks lowered their prime lending rates from 12 3/4 percent to 12 1/2 percent. The day before, Bankers Trust Co. of New York had cut its rate to 12 1/4 percent.
Analysts said the smaller reduction at the other banks was due both to a desire to keep profits up and to uncertainties over the course of interest rates over the next several weeks. Most short-term rates have fallen close to a percentage point since the first of September, and forecasters are divided over whether they will turn upward again before the end of the year.
Generally, the expectation among the forecasters is that rates will rise at least somewhat if the economy resumes growing at a rate of 4 percent or more.
"A host of uncertainties surrounds the performance of the economy in the current quarter," said economist Allen Sinai of Shearson Lehman/American Express. If consumer spending, which dropped substantially in July and August but probably rose again in September, continues weak, "the fourth-quarter growth figure for real gross national product may fade compared with the third," he said. "A rebound in consumer spending would cause a new surge in growth."
Sinai expects only a modest rebound in consumer buying, and an increase in GNP, adjusted for inflation, at only a 2.5 percent annual rate for this quarter. Real GNP rose at a 10.1 percent rate in the first quarter, a 7.1 percent rate in the second, and according to a Commerce Department estimate based on partial data, at a 3.6 percent rate in the third quarter.
A number of other forecasters predict real GNP will be up at a 4 percent to 5 percent rate in the fourth quarter. Who is right likely will depend on the strength of the Christmas season for retailers.
Last month's drop in industrial output followed a tiny 0.1 percent gain in August, a figure the Fed revised downward from its original estimate of a 0.2 percent increase. The GM strike was responsible for between one-third and one-half of the September drop, analysts said.
However, the production declines were spread through most of the economy. Output of nondurable goods for consumers went down 0.6 percent after falling 0.4 percent in August. Similarly, production of construction materials fell 0.1 percent following a 0.4 percent drop the month before.
Among the categories of types of goods, only business equipment and defense and space items rose. Moreover, the 0.3 percent gain for business equipment was substantially lower than the increases in the previous four months, which averaged 2 percent per month.
There will be some rebound in the production index for October as a result of the end of the strike. The Federal Reserve said 7.9 million autos and trucks are scheduled to be assembled this month compared with 6.9 million last month.
But the the pace of new orders for factory goods has been flat for some time, and even if the index starts moving upward again, as most forecasters say it will, the month-to-month gains are expected to be much more modest than they were during the first year and a half of the economic recovery.
Growth during economic expansions has rarely been smooth or uniform. For instance, just before the 1976 election, growth slowed to the point that unemployment began rising and was a factor in President Ford's defeat. But economic growth accelerated early in 1977 to the point that President Carter withdrew part of his tax cut proposal intended to provide a quick shot in the arm for the economy.
One factor in keeping the expansion going could be the recent declines in interest rates.