Factory output drops for second time in three months

Economists had been wondering if the recent flagging employment numbers were a statistical fluke or signs of a downturn.

The latest on industrial output should answer some of those questions.


Manufacturing output contracted in May for the second time in three months and a gauge of factory activity in New York state plunged this month, worrisome signs the American economy is cooling.

Factory production shrank 0.4 percent last month, the Federal Reserve said on Friday. Total industrial output, covering factories, mines and utilities, declined 0.1 percent.

Analysts polled by Reuters had expected industrial production to rise 0.1 percent.

The slackening U.S. recovery and a worsening debt crisis in Europe have increased expectations of a further easing of monetary policy by the Fed, although economists are divided on whether the central bank will act when it meets on Tuesday and Wednesday.

Hiring by U.S. employers has slowed for four straight months, while retail sales contracted in May and new applications for jobless benefits have risen for five of the last six weeks.

In a sign factory sector weakness could extend into June, the New York Federal Reserve Bank's "Empire State" index fell to 2.3, a 15-point drop from the month before and the lowest level since November 2011. That was far below economists' expectations of 13, although the level still points to some growth.

"That is another indication that the U.S. economy is slowing," said Justin Hoogendoorn, a fixed income strategist at BMO Capital Markets in Chicago. "It's an ugly situation."

What's amazing is that we have a slowing economy that was already growing at an anemic pace. It's almost comical to read that the economy is "cooling off" - as if it had been roaring along with the economy hitting on all cylinders. The economy is slowing to an amoeba pace compared to the snail's pace we were enjoying earlier in the year.

The fact is, we may already be in a recession; all we can do is wait for the downward revisions in GDP to confirm that.

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