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  Date / Time: 2/19/2009 6:39 PM UTC

  U.S. Economy: Factory Output, Housing Starts Plunge (Update1)
  

  eb. 18 (Bloomberg) -- Manufacturing and housing in the U.S. collapsed in January, government reports showed, as the Obama administration unveiled new proposals to stem what may become the worst recession in the postwar era.

  The Federal Reserve’s industrial production index dropped 1.8 percent to 101.3, the lowest level in more than five years, the central bank reported today in Washington. Housing starts plunged 17 percent to an annual rate of 466,000, the fewest since records began in 1959, Commerce Department data showed.

  General Motors Corp. has asked for new loans and said it plans to cut 47,000 more jobs worldwide as sales plunge, while builders struggle to trim the glut of homes propelled by the surge in foreclosures. President Barack Obama pledged $275 billion in a program that includes cutting mortgage payments and encourages loan modifications to keep Americans in their homes, and Fed policy makers lowered growth forecasts.

  “The recession news could hardly have been worse,” said Roger Kubarych, chief U.S. economist at UniCredit Global Research in New York. “There is no evidence whatsoever that the U.S. downturn is close to bottoming, whether in hard-hit manufacturing or in the housing sector.”

  Most stocks dropped as the Fed cut its growth projection for 2009 and the output and construction data showed a deepening recession. The Standard & Poor’s 500 Index fell 0.1 percent to close at 788.42. Treasury securities dropped on speculation the government would sell record amounts of debt next week.

  Fed Minutes

  Fed officials introduced a long-term U.S. inflation estimate, with most officials aiming to anchor public expectations at a 2 percent rate, according to minutes of the central bank’s Jan. 27-28 meeting released today in Washington. Some officials saw a risk of broad price declines, a pattern that could worsen the recession by making debts harder to repay.

  Economists forecast industrial production would drop 1.5 percent, according to the median of 75 projections in a Bloomberg News survey. Estimates ranged from a decline of 3.1 percent to a gain of 0.5 percent.

  The proportion of plants in use fell to 72 percent, the lowest since February 1983, the Fed’s report also showed.

  Factory output, which accounts for about four-fifths of industrial production, decreased 2.5 percent, led by a 40 percent slump at automakers. Auto assemblies fell to a 3.9 million annual rate, the fewest since record-keeping began in 1967.

  ‘Continued Disaster’

  “The continued disaster in the auto sector was the biggest driving force,” Ian Shepherdson, chief U.S. economist at High Frequency Economics Ltd. in Valhalla, New York, said in a note to clients. “Industry continues to contract, with no chance of a near-term recovery.”

  General Motors yesterday asked the U.S. government for as much as $16.6 billion in new loans, more than doubling the aid to date, and said it needs some of the cash next month to survive. Chrysler LLC, also propped up with federal assistance, said it’s seeking $5 billion more from the government and will reduce 3,000 more positions.

  The report from Commerce showed building permits, a sign of future construction, dropped 4.8 percent to a 521,000 annual pace.

  The decline in housing starts exceeded the median estimate of economists surveyed by Bloomberg News, which anticipated a 529,000 pace.

  Construction Drops

  Construction of single-family homes decreased 12 percent to a 347,000 rate, today’s report showed. Work on multifamily homes, such as townhouses and apartment buildings, dropped 28 percent from the prior month to an annual rate of 119,000.

  Housing starts declined in all four regions, led by a 43 percent plunge in the Northeast and a 29 percent drop in the Midwest.

  “The problem with the build-up in inventory is coming from the increasing number of foreclosures,” Nicolas Retsinas, director of Harvard University’s Joint Center for Housing Studies in Cambridge, Massachusetts, said in a Bloomberg Television interview. “It’s about time the government intervened so directly in the problem.”

  Obama’s housing recovery plan is seeking to help as many as 9 million homeowners restructure or refinance their mortgages to avoid foreclosure. The Treasury Department today also said it will double the amount of stock purchases of Fannie Mae and Freddie Mac to as much as $200 billion of each company.

  Stimulus Plan

  The president yesterday signed into law a $787 billion stimulus package that provides tax breaks and government spending designed to resuscitate the U.S. economy.

  “No one program, no matter how well designed it is, is going to solve all the problems at one time,” said Adam York, an economist at Wachovia Corp. in Charlotte, North Carolina. “We are going to have a long, agonizing road to recovery.”

  A third report today showed prices of goods imported into the U.S. fell in January for a sixth consecutive month on lower commodity costs and slumping demand. The Labor Department’s import-price index decreased 1.1 percent last month after a 5 percent drop in December. Prices were down 12.5 percent from January 2008, the most since records began in 1982.

  “The further declines in import prices also attest to the global scope of the economic downturn,” said UniCredit’s Kubarych.

  To contact the reporters on this story: Timothy R. Homan in Washington at thoman1@bloomberg.net; Courtney Schlisserman in the New York newsroom cschlisserma@bloomberg.net

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