Manufacturing drop worst in 34 years

Production at US factories last month fell by 2.8 percent, the largest decline since December 1974, according to a report released today by the Federal Reserve. The decrease in production at factories, mines and utilities far exceeded analystsÔÇÖ forecasts and followed a 1 percent decrease in August, the Fed said. The Fed said that production fell 6 percent for the third quarter, the largest drop since 1991, almost doubling the 3.1 percent drop for the second quarter.  The report blamed the precipitous drop mainly on the damage to Gulf Coast industry of hurricanes Gustav and Ike. Mining output plummeted 7.8 percent due to the two storms, and oil and gas production also fell as facilities were shut down.  The impact was more severe than that of hurricanes Katrina and Rita in 2005, which brought about a 1.8 percent drop in industrial production.  Industrial production also was hurt by a Boeing plant strike. Chicago-based Boeing, the world's second-largest commercial plane maker, recently reported that its factories will remain idle for a sixth week after the company failed to settle a strike with its machinists union.  Industrial production is one of four factors the National Bureau of Economic Research looks at to determine if the economy is in a recession. The other three are employment, personal income, and retail and wholesale sales of manufactured goods.  Although industrial production has been showing up-and-down growth since January of last year, it has recently started showing the kinds of huge declines typical of a recession. After small rises in manufacturing in June and July of this year, production plummeted 1.1 percent in August after a serious drop in auto manufacturing. Production declined for 12 consecutive months during the recession of 2001.  The report also showed that industrial capacity utilization, a measure of the percentage of factories in use, decreased to 76.4 percent from 78.7 percent the previous month. Analysts had expected a decrease of only 0.7 percent. ┬á