Industrial output slips in October

U.S. factories, mines and utilities saw the largest decline in output in nine months in October, adding another troubling piece to an economy already struggling under the weight of a housing downturn.

Industrial output fell 0.5% last month, the biggest decline since a matching drop in January, the Federal Reserve report showed Friday.

The decrease added to the pessimistic outlook for growth that economists are now painting.

“The broad-based decline in manufacturing output during the month of October indicates that the growing risks to both U.S. and global growth are materially impacting U.S. factory performance,” said Cliff Waldman, an economist for the Manufacturers Alliance/MAPI.

Fallout from the meltdown in the sub-prime mortgage market is expected to take a big toll on the U.S. economy, particularly as credit and liquidity tighten further.

A recent report from Goldman Sachs estimated that banks, broker-dealers, hedge funds and government-sponsored enterprises could face a lending shock of as much as $2 trillion.

Economists surveyed before the industrial product report were expecting total output to increase 0.1% in October.

“Manufacturing was pretty weak . . . suggesting that the factory sector is heading for recession, if not already in one,” said Kenneth Kim, an economist at Stone and McCarthy Associates.

According to the Fed report, manufacturing output was down 0.4% after a 0.2% gain in September.

That brought down capacity utilization to 81.7% from 82.2%, slightly below the 82% that economists were expecting.

Motor vehicles and parts production was down 1% in October after a 3% drop in September.

Signs of any narrowing of the trade deficit were squashed with a separate report that indicated weaker-than-expected flows of foreign investment capital coming into the U.S.

Treasury Department data Friday showed a lower-than-expected flow of long-term capital into the U.S. of $26.4 billion during September, below expectations of $70 billion.

Although foreigners flipped from being net sellers of U.S. government and corporate bonds and stocks to net buyers, the total flow, taking into account the amount of foreign securities that U.S. investors bought, was still not enough to fund the $56-billion U.S. trade deficit in September.