Industrial Production Plunges

The General Motors strike sent output at the nation's factories, mines, and utilities plunging in June at steepest rate in five years.

Industrial production fell 0.6 percent, matching a drop in May 1993, the Federal Reserve said Thursday. There hasn't been a steeper decline since the index fell 0.9 percent in March 1991, the last month of the 1990-1991 recession.

However, most of the decline was attributed to an 11 percent dropoff in automotive production.

Outside of the auto industry, the performance was lackluster. Output at factories other than auto, trucks, and parts plants rose just 0.1 percent in June following a 0.1 percent decline in May. Utility output increased 0.4 percent last month, while production at mines and oil wells fell 2 percent.

The overall drop in industrial production was larger than economists expected from the GM strike alone and fit with the notion that Asia's economic turmoil is slowing the U.S. economy by knocking down demand for U.S. exports to the region.

Though bad news for manufacturing companies and their employees, the production decline could be seen as a favorable development supporting continued low inflation.

It pushed the operating rate at industrial firms to 81.6 percent of capacity, the lowest in five years and down from 82. 4 percent in May. Just at factories, the operating rate declined to 80.3 percent, also the lowest in five years and down from 81.1 percent.

That's been reflected in recent inflation reports, which show prices virtually unchanged for goods but up at a moderate rate of nearly 3 percent for services, which are feeling the squeeze of labor shortages in many occupations.

Written by Dave Skidmore