By Timothy R. Homan and Shobhana Chandra Nov. 17 (Bloomberg) -- Industrial production rebounded in October after refinery shutdowns from Gulf Coast hurricanes caused the biggest drop since 1946 the month before. The 1.3 percent gain wasn't enough to make up for the 3.7 percent September plunge, and output shrank by 0.7 percent in each of the past two months after excluding the effect of the hurricanes and a Boeing Co. strike, the Federal Reserve said. The New York Fed said its factory index fell to a record low. ``The trend is clearly very, very weak,'' said Joshua Shapiro, chief U.S. economist at Maria Fiorini Ramirez Inc. in New York. ``Export demand is falling apart, and domestic demand has already fallen apart. We'll stay in a recession at least until the early part of 2010.'' The choking off of credit to businesses is forcing companies to cut back on investments, while the downturn in consumer spending has eroded demand for everything from cars to computers and furniture. Stocks slid for the fifth time in six trading days, with manufacturers Caterpillar Inc. and Deere & Co. each losing more than 2 percent. A record export boom kept U.S. manufacturers busy until economies abroad began contracting. Japanese government figures today showed the country sinking into its first recession since 2001. The 15-nation euro region's gross domestic product has also shrunk the past two quarters. Stocks, Treasuries The Standard & Poor's 500 Stock Index fell 1.8 percent to 857.8 at 11:41 a.m. in New York. Yields on benchmark 10-year Treasury notes fell to 3.69 percent from 3.73 percent at last week's close. The U.S. has entered a recession that will persist into next year, and economies around the world will follow suit, according to a survey of business economists released today. After growing 1.4 percent this year, the U.S. will contract 0.2 percent in 2009, according to the median estimate in a poll taken by the National Association for Business Economics. A majority of respondents said the U.K., euro area, Japan, Canada and Mexico are either now, or will soon be, in a recession. U.S. industrial production was forecast to rise 0.2 percent after a previously reported 2.8 percent drop in September, according to the median estimate of 64 economists surveyed by Bloomberg News. `Nothing' Good ``Manufacturing is contracting and is contracting very sharply,'' said Nigel Gault, chief U.S. economist at IHS Global Insight in Lexington, Massachusetts. ``There's almost nothing you can say that's good. There was an export cushion previously, and that is disappearing.'' Capacity utilization, which measures actual production as a share of the maximum potential, increased to 76.4 percent from 75.5 percent the prior month. The New York Fed's general economic index fell to minus 25.4, the lowest since records began in 2001, from minus 24.6 percent in October. Readings below zero for the so-called Empire State index signal manufacturing is shrinking. Factory output, which accounts for about four-fifths of industrial production, increased 0.6 percent, led by a rebound in petroleum and chemical products that reflected the resumption of operations from the storms. Utility production increased 0.4 percent after rising 2.4 percent. Mining output, which includes oil drilling, jumped 6.1 percent after falling 8.5 percent in September. Industrial capacity utilization was estimated to increase to 76.5 percent from 76.4 percent, according to the Bloomberg survey median. Plunge in Autos Motor vehicle and parts production dropped 3.5 percent following a 1.3 percent increase the prior month, the report said. Factories assembled just 8.09 million motor vehicles at an annual pace last month, the fewest since 1991. Production of consumer durable goods, including automobiles, furniture and electronics, fell 2.1 percent. Auto industry figures earlier this month showed cars and light trucks sold at a 10.6 million annual pace in October, the lowest since April 1991. President-elect Barack Obama is pushing Congress to approve as much as $50 billion this year for cash- starved U.S. automakers. Industrial production in October also was weakened by a now- resolved 8-week strike by approximately 27,000 machinists at Boeing, the world's second-largest commercial planemaker. Other reports indicate a bleak outlook for manufacturing. The Institute for Supply Management's factory index for October dropped at the fastest pace in 26 years, the Tempe, Arizona-based group said Nov. 3. Slowing demand in the U.S. and abroad is causing some companies to trim their payrolls. U.S. Steel Corp., the largest U.S.-based steelmaker by 2007 sales, will cut 500 American jobs amid a ``dramatic downturn'' in the economy, John Armstrong, a spokesman, said in a telephone interview Nov. 13. To contact the reporter on this story: Timothy R. Homan in Washington at thoman1@bloomberg.net

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