Recession pushes industrial production down in November

AP Economics WriterWASHINGTON (AP) -- In more signs of the far-reaching impact of the country's recession, the government reported today that output at the nation's factories fell again in November but the spreading economic weakness helped keep consumer inflation in check.

The Federal Reserve said output at the country's factories, mines and utilities was down 0.3 percent last month, the 13th decline in the past 14 months, with weakness in all major categories.

While the country tumbled into its first recession in a decade in March, the manufacturing sector entered its own downturn almost a year earlier, with more than 1 million jobs lost in a variety of industries.

Industrial production peaked in June of 2000 and output since then has fallen by 6.8 percent, the biggest decline since the 1981-82 recession.

A second report Friday showed that the economic downturn does have at least one benefit -- it is keeping inflation well in check.

The Labor Department reported that its Consumer Price Index showed no gain in November after having fallen by 0.3 percent in November.

So far this year, inflation at the consumer level is rising at an annual rate of just 1.9 percent. Thousands of job layoffs have resulted in a dampening of wage demands while retailers have been busy slashing prices to entice consumers to keep spending during hard times.

The 1.9 percent inflation rate this year compares to inflation increases of 2.7 percent in 1999 and 3.4 percent last year, which had been the worst performance in nine years.

In both of those years, energy costs shot up at double-digit rates. Energy costs so far this year are falling at a 11.1 percent rate as oil producing countries have battled against a global glut of oil, reflecting the onset of what many fear is a worldwide recession.

In another reflection of how the recession was dampening economic activity, the Commerce Department reported today that businesses slashed their inventories by a sharp 1.4 percent in October following a 0.6 percent reduction in September.

Businesses have been struggling to reduce their backlog of unsold goods as the recession has dampened demand for their products. Analysts believe that all of these reductions are setting the stage for a return of economic growth next year if demand picks up as expected.

The Fed cut interest rates for an 11th time on Tuesday, pushing a key rate down to the lowest level in 40 years as it continued to try to jump-start an economy that tumbled into a recession last March and was dealt another severe blow with the Sept. 11 terrorist attacks.

The low inflation rates will give the Fed room to cut rates even further if necessary to guarantee a rebound in economic activity next year, analysts believe.

The CPI report showed that energy prices dropped by 4.4 percent after falling by an even bigger 6.3 percent in October. Gasoline pump prices were down 10.1 percent while home heating oil costs and the price of electricity in the home also declined.

Only natural gas showed an increase last month, rising by 2.6 percent, but analysts said even with this gain natural gas prices remain far below the high levels hit last winter during a period of gas shortgages in many parts of the country.

Food costs were also down last month, declining 0.1 percent as the cost of pork, vegetables and poultry all declined.

Outside of the volatile food and energy areas, the so-called core rate of inflation took a big jump in November, rising by 0.4 percent after four straight months of more modest 0.2 percent gains. In fact, the November increase was the biggest since a similar 0.4 percent rise in January of 1996.

However, analysts noted that much of the cost pressures came in two areas, a huge 3.9 percent jump in tobacco prices and a 0.6 percent rise in new car costs, which was the biggest gain for autos since January 1991. Analysts said the big jump in car prices reflected a bounceback after steep discounting was put in place in October as dealers struggled to lure customers back into showrooms following the terrorist attacks.

In other areas, the cost of airline tickets tumbled by 2.7 percent in November, the biggest decline in more than a year, as the airline industry continued to face tough times in luring back tourist traffic.