Industrial production falls by most since late `74

WASHINGTON – Big industry production plunged in September by the most since late 1974, largely reflecting fallout from hurricanes Gustav and Ike.

The Federal Reserve reported Thursday that production at the nation's factories, mines and utilities plunged 2.8 percent last month, on top of a 1 percent drop in August.

The Fed estimated that disruptions related to the hurricanes accounted for about 2.25 percentage points of the total drop in industrial production in September. In addition, a strike affecting the commercial aircraft industry also was a factor in the poor showing, accounting for around a half percentage point of the overall decline, the Fed said.

The drop in industrial production in September was the biggest since December 1974, when output fell 3.5 percent.

The latest showing on industrial activity was worse than economists expected. They were forecasting a decline of 0.8 percent.

Crude oil and natural gas production in the Gulf of Mexico were suspended because of the hurriances, contributing to the hit to overall industrial output, the Fed said. Hurricane related shutdown of petroleum refineries and petrochemical producers also factored into the drop. Other manufacturing industries reported outages from the storms, which also held back production last month.

Still, even before the hurriances hit, manufacturing has been feeling the pain of the housing collapse, credit problems and weaker demand from the slowing U.S. economy. Demand for housing related goods and construction materials has been particularly hard hit as the housing slump has dragged on.

Slowdowns in other overseas economies, meanwhile, are expected to sap demand for U.S. exports, which has been a key factor keeping the U.S. economy afloat.