US industrial production, output at the nation’s factories, mines, and utilities, decreased a severe 2% in the month of December, after falling a downwardly-revised 1.3% in November, according to the Federal Reserve. After declines in four of the last five months, production has decreased 1.8% for all of 2008, the first yearly decline since 2002. Production fell at an astonishing 11.5% rate in the 4th quarter, the most since 1980.

The report was significantly below estimations, as economists were expecting a 1.2% decrease in output.

Capacity utilization, a key gauge of inflationary pressures, fell to 73.6% from 75.2%. This is the lowest level since December 2001, and 7.4 percentage points below its average level from 1972 to 2007. Lower capacity usually leads to slower inflation, as producers compete with each other for work.

Report Details (via MarketWatch):

Declines in output were widespread in December.

The output of consumer goods fell 1.7%. The production of consumer durables tumbled 4.7%, while the index for nondurables fell 1%.

The production of automotive products fell 7% in December.

The index for business equipment rose 1.8% led by a gain in output for commercial aircraft after the end of the strike at Boeing Co.

Manufacturing output fell 2.3% in December and is almost 10% below the level of 12 months earlier.

For the fourth quarter, manufacturing output fell at a 16% annual rate.

The production of durable goods fell 2.6% in the month. Output fell in almost every major category.

See Full Report.

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