Federal Reserve says housing and auto production down, other sectors

March 19, 2008

The Federal Reserve Board reports that industrial production declined by 0.5 percent in February, the first decline in four months, and reflects weakness in the housing and auto sectors.

The Federal Reserve report also showed that the manufacturing sector, which makes up nearly 80 percent of industrial output, fell by a milder 0.3 percent last month.

“The ongoing housing downturn continues to weigh heavily on a number of manufacturing industries,” David Huether, chief economist for the National Association of Manufacturers (NAM) said. “The drop in manufacturing output last month was led by 3 percent declines in both furniture and wood product production. At the same time, motor vehicle production dropped by 1 percent. This is the fifth decline in the past seven months and partly the result of higher energy costs as well as the negative wealth effects stemming from lower home prices.

“At the same time, however, other manufacturing industries, such as computers and electronic products, machinery, medical equipment and aerospace, have experienced gains in production in recent months, partly reflecting continued growth in exports,” Huether said. “Thus, while, the overall manufacturing sector is not in recession, it is clearly struggling. With the housing downturn expected to last throughout the year, and the spillover effects into consumer spending likely to intensify, the manufacturing sector will likely experience modest domestic demand in the first half of this year.

“This will be partly offset by continued robust export growth,” Huether concluded As a result, the manufacturing sector is in a better position today than it was in 2001 when duel declines in both domestic demand and exports sent the manufacturing sector into a sharp contraction.”