msnbc.com news services
updated 10/16/2008 10:21:17 AM ET 2008-10-16T14:21:17

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

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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.

Oil, gas production suspended

Production at our nation’s factories fell 2.8 percent in September, in addition to a 1 percent drop in August.
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.

Mid-Atlantic manufacturing contracts
Meanwhile, another survey released Thursday showed that Mid-Atlantic factory activity essentially crashed in October.

The Philadelphia Federal Reserve Bank reported that its business activity index slumped unexpectedly hard to -37.5 in October from 3.8 in September.

Wall Street economists had expected a reading of minus 10.0, according to a Reuters poll. Their 54 forecasts ranged from minus 25.0 to plus 5.0.

A reading below zero indicates contraction manufacturing in the region, which encompasses eastern Pennsylvania, southern New Jersey and Delaware and is as one of the first monthly indicators of the health of the U.S. manufacturing sector.

The Associated Press and Reuters contributed to this report.

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