Financial thoughts

Production at U.S. industries probably dropped in April, as the slowdown in consumer spending prompted automakers to cut back, economists said before a report from the Federal Reserve today.

Output at manufacturers, mines and utilities fell 0.3 percent after rising 0.3 percent in March, according to the median forecast in a Bloomberg News survey. Separate regional Fed reports may also show the decline continued into May.

A deepening housing slump, restrictions on credit and soaring food and fuel prices have caused consumers and businesses to rein in purchases of expensive items like cars and machinery. Only growing demand from overseas has prevented American factories from declining even more.

“Manufacturing is in a mild downturn,'' said Michael Moran, chief economist at Daiwa Securities America Inc. in New York. “The trade sector is doing well. Companies don't have to cut back a lot.''

The Fed figures on industrial production are due at 9:15 a.m. in Washington. Estimates from the 76 economists surveyed ranged from a drop of 0.8 percent to a gain of 0.7 percent.

Capacity utilization, which measures the proportion of plants in use, may have dropped to 80.1 percent, the lowest level in more than two years.

The Fed Bank of New York's Empire State index, due at 8:30 a.m., is forecast to show manufacturing in that region stalled this month, according to economists surveyed. A similar report from the Philadelphia Fed at 10:00 a.m. is projected show factories in that region contracted in May for a sixth month.

Sales Slump

Sales of cars and light trucks in April slid to a 14.4 million annual rate, the fewest since 1998, according to industry figures. Officials at General Motors Corp., the world's largest automaker, said this week the company may have to borrow cash and reduce spending to fund its operations if the economy worsens.

“There have been a lot of questions about whether the U.S 1500 payday loans. economy is in recession — the U.S. auto industry is definitely in a recession,'' GM's Chief Operating Officer Fritz Henderson said in a May 13 conference call.

GM is cutting production by 138,000 trucks and sport-utility vehicles at four plants in the U.S. and Canada this year amid record-high gasoline prices. The reduction is about 10 percent of GM's planned large pickup and SUV production for 2008.

Part of the projected slump in auto making last month also reflected a protracted strike at American Axle & Manufacturing Holdings Inc., GM's biggest axle supplier.

Ongoing Strike

The United Auto Workers walkout at American Axle, which began Feb. 26, idled all or part of as many as 33 GM factories, and cut GM's output by 230,000 vehicles through April, according to the Detroit-based automaker. GM this week said it reopened or added shifts at five North American plants.

Consumers aren't the only ones tightening their belts. Business investment in new equipment and software dropped last quarter for the first time in more than a year, according to figures from the Commerce Department.

Deere & Co., the world's largest maker of tractors and combines, yesterday reported second-quarter profit grew less than analysts estimated because of a 7.2 percent drop in demand for construction equipment and rising raw-material costs.

So far, manufacturing has done better than in past economic slowdowns, in part due to gains in exports. The Institute for Supply Management's factory index reached a five-year low of 48.3 in February, and then stabilized just above that level over the last two months. The index fell as low as 42.1 in February 2001, a month before the start of the last recession.

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