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Industrial output drops

0.5 percent decline in January reflects huge auto industry cutbacks

WASHINGTON -- Industrial output fell in January by the largest amount in 17 months, reflecting huge cutbacks at auto factories and weakness in housing-related industries.

The Federal Reserve reported yesterday that output at US factories, mines, and utilities fell 0.5 percent in January, the biggest drop since Hurricane Katrina disrupted activity in the fall of 2005.

Half of last month's decline reflected a drop of 6 percent in output at auto and auto parts factories with smaller setbacks occurring in housing-related industries such as furniture, appliances, and carpeting.

Overall, manufacturing fell 0.7 percent, with analysts predicting continued weakness in coming months reflecting the problems in the auto and housing industry.

"Automakers are working off a lot of unsold vehicles and they can't offer discounts as they have in years past because of their poor financial conditions," said Mark Zandi, chief economist at Moody's

On Wall Street, investors viewed the weaker-than-expected industrial production as a further sign the Federal Reserve is finished raising interest rates. The Dow Jones industrial average rose 23.15 points to 12,765.01, its second-straight record close.

Separately, the number of newly laid off workers filing claims for unemployment benefits jumped 44,000 to 357,000 last week, the largest one-week increase since September 2005.