US industrial production posted the biggest monthly decline since 1974 while consumer prices were flat in September, according to reports today that built a compelling argument for more interest rate cuts to slow a steep economic slide.
Adding to the gloom, a survey of Mid-Atlantic factory activity in October plummeted to its lowest in 18 years.
Industrial production tumbled 2.8 per cent last month, the Federal Reserve said, far worse than the 0.8 per cent decline that economists had expected. Business equipment production dropped 7 per cent, a sign that companies were retrenching as the credit crisis intensified.
Falling energy costs helped keep the Consumer Price Index steady, compared to forecasts for a 0.1 per cent rise, Labor Department data showed. A separate Labor Department report on claims for jobless benefits indicated employers were trimming payrolls as profits shrink.
A survey of Mid-Atlantic factories reinforced the reports of falling industrial output and rising unemployment.
The Philadelphia Federal Reserve Bank said its business activity index slumped to -37.5 in October, the lowest reading since October 1990, from 3.8 in September. The survey's employment index was the lowest since December 2001 and the index of new orders hit the lowest since 1980.
The factory survey erased a higher open for US stocks, a day after their worst session since the 1987 crash. Prices for US government bonds, which generally rise in times of economic gloom, erased most of their early losses.
Economists said signs of moderating inflation and a soft job market give the US Federal Reserve room to cut interest rates further to boost the flagging economy.
"With companies cutting back ... the outlook for payrolls and the unemployment rate is terrible," said Ian Shepherdson, chief economist for High Frequency Economics in Valhalla, New York.
"Even with the banking crisis easing, the Fed will be under pressure from the ... data to keep cutting rates."