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Friday June 15, 10:45 am Eastern Time

U.S. production capacity in use lowest since '83

(UPDATE: Recasts, adds background)

By Jonathan Nicholson

WASHINGTON, June 15 (Reuters) - The United States' factories, mines and utilities operated in May at their slowest pace in more than 17 years, the Federal Reserve said on Friday in a report reflecting the weakness in the factory sector.

U.S. industrial capacity in use fell to 77.4 percent, the lowest since August 1983, when was at 77.0 percent, the Fed said.

Industrial production slipped 0.8 percent, its eighth consecutive monthly fall. Factory production, the largest component of overall industrial output, fell 0.7 percent in the month, driven lower by declines in most major categories.

The decline was larger than Wall Street analysts had been expecting and underscores the fragile position of the U.S. manufacturing sector, which has been shedding workers at a rapid pace during the current economic slowdown. Factory payrolls slipped by 124,000 in May.

The drop may also put more pressure on Federal Reserve policymakers when they meet later this month to set interest rate policy. Most observers expect the central bank to cut interest rates by at least a quarter percentage point.

The decline also could ratchet up pressure on the Bush administration to reexamine the long-standing ``strong dollar'' policy. Manufacturers have been hard hit by the recent slowing in the economy, and have pressed Treasury Secretary Paul O'Neill to allow the dollar to weaken, which would make U.S. products cheaper abroad. Treasury has repeatedly said its dollar policy remains unchanged.

May Decline Broad-based

The May industrial output decline was broad-based, with drops in most major categories except auto and auto parts production. Production of durable goods -- those meant to last three or more years -- was off by 0.5 percent in the month while output of nondurables fell by 1.0 percent.

The high-tech sector, which includes computers, semiconductors and communications gear, continued to slow, with production slipping 1.2 percent.

``Capacity utilization in high-tech industries ... dropped in May for the tenth successive month, to 70.3 percent, the lowest utilization rate posted for the high-tech sector in 25 years,'' the Fed said.

Auto output, on the other hand, managed to eke out a 2.4 percent increase. The vehicle assembly rate rose to an 11.84 million annual rate, up from from 11.54 million in April.

Production at utilities dropped 1.8 percent, which came after a 1.0 percent decline seen in April. Output in the mining sector dipped 0.4 percent.

-- (M@rket.trends), June 15, 2001

Answers

http://quote.bloomberg.com/fgcgi.cgi?ptitle=Top%20Financial% 20News&s1=blk&tp=ad_topright_topfin&refer=topfin&T=markets_bfgcgi_cont ent99.ht&s2=blk&bt=ad_position1_topfin&middle=ad_frame2_topfin&s=AOyoj lxbVVS5TLiBF

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"The eight months of decline in industrial production is the longest stretch since March-December 1982, which was a recession year. Today's report also showed that industry operated at 77.4 percent of capacity in May, the lowest since August 1983 and a drop from 78.2 percent in April."

-- (M@rket.trends), June 15, 2001.