US industrial output sees decline

The car industry is feeling the pinch as consumers cut spending

US industrial output fell by more than expected in April, after manufacturers and car firms cut production.

Output fell by 0.7% in April from the month before, when output had risen by 0.2%, the Federal Reserve said.

The latest drop was twice that forecast by analysts and has added to fears over the world's largest economy.

The automotive sector saw its biggest drop in nearly a decade as consumer demand for new cars slowed, and a strike at General Motors cut output.

Auto and parts production dropped 8.2% in April - the largest monthly decline since July 1998, when production fell 12.7%.

"A rapidly shrinking vehicle sector led the manufacturing sector downward, showing that there is a significant consumer slowdown," said Joel Naroff of Naroff Economic Advisors.

Recession?

While there have been some recent signs that consumer sentiment may be recovering following the economic problems that led to a slump in the housing market, high food and energy prices are still dampening demand.

Consumer spending is a key driver of the US growth, accounting for some two-thirds of economic activity, and with the economic outlook so uncertain, many shoppers and companies are putting off purchases.

As well as car production, the output of furniture, machinery, electrical equipment, textiles and plastics also dropped in April.

Many analysts had forecast that industrial output, which covers factories, utilities and mining firms, would fall by about 0.3% in April.

"The decline in April industrial production and reduction in manufacturing production is conclusive evidence that the industrial side of the US economy is in a recession," said Daniel Meckstroth of the Manufacturers Alliance/MAPI.