RPT-WRAPUP 2-US industrial output falls, monetary easing seen

(Repeats to additional subscribers)

* Industrial production falls 0.2 pct in September

* Capacity utilization edges down to 74.7

* Home-builder confidence rises to 16 in October
(Adds details, byline, updates markets)

By Lucia Mutikani

WASHINGTON, Oct 18 (BestGrowthStock) – U.S. industrial output
shrank last month for the first time in more than a year, a
sign the economy was in a slow growth rut that appears certain
to lead to more monetary stimulus from the Federal Reserve.

Another report on Monday showed home-builder sentiment rose
this month but remained at depressed levels, fortifying views
that the U.S. central bank would pump more money into the
economy at its Nov. 2-3 meeting.

“The industrial production report illustrates, if anything,
economic growth is still slowing rather than beginning to pick
up again, which is yet another reason for the Fed to unleash
QE2,” said Paul Ashworth, a senior U.S. economist at Capital
Economics in Toronto, using market shorthand for a second round
of quantitative easing.

Industrial production fell 0.2 percent, the first decline
since June 2009, the Fed said. Economists had expected
September’s industrial production to rise 0.2 percent, the same
as in August.

Separately, the National Association of Home Builders/Wells
Fargo Housing Market Index rose three points to 16 in October,
beating economists’ expectations for a 1-point rise to 14.

A reading below 50 indicates that more builders view sales
conditions as poor than good. The index has not been above 50
since April 2006.

<^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^

For graphic on October home builder sentiment see:

http://r.reuters.com/vew88p

For graphic on industrial production see:

http://r.reuters.com/haz88p

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The recovery from the worst recession in 70 years has
slowed markedly, leaving unemployment uncomfortably high and
inflation too low for the Fed’s liking.

Frustration over the sluggish economy, in particular the
9.6 percent unemployment rate, could deal a blow to the
Democratic Party in Nov. 2 congressional elections. Republicans
are expected to win control of the U.S. House of
Representatives and pick up some Senate seats.

The tepid recovery is also proving problematic to the Fed.

The central bank, which cut overnight interest rates to
near zero in December 2008, has already pumped $1.7 trillion
into the economy by buying mortgage-related and government
bonds. It now appears on the verge of launching another round
of bond buying.

STIMULUS SIZE UNCLEAR

On Friday, Fed Chairman Ben Bernanke offered a strong
signal that more monetary policy easing was imminent.

While financial markets have largely priced in a second
round of quantitative easing, it is unclear how much money the
central bank will inject and Bernanke offered few clues.

Some traders scaled down bets on the size of the stimulus
on Monday. Perceptions the Fed would opt for gradual asset
purchases rather than a big-bang approach saw the U.S. dollar
rise against the euro for a second straight session.

Bargain-hunting after recent losses lifted prices for U.S.
government debt, while U.S. stock indices rose slightly after
better-than-expected results from Citigroup (C.N: ).

In the third quarter, production at the nation’s mines,
factories and refineries rose at an annual rate of 4.8 percent,
slowing from a pace of about 7 percent in the second quarter.

Output in September was pulled down by a 0.2 percent
decline in manufacturing production, which analysts said
confirmed other recent signs of a slowdown in factory activity
as the boost from the rebuilding of inventories fades.

Manufacturing of consumer goods declined for a second
straight month.

“It reinforces our belief that inventory accumulation has
got a little bit ahead of itself and most likely will have to
come down and this is going to weigh on output over the next
months,” said Aaron Smith, a senior economist at Moody’s
Economy.com in West Chester, Pennsylvania.

Analysts expected a small boost from inventories to
third-quarter economic growth and a minor drag to output for
the final three months of the year. They saw no collapse in
manufacturing activity, despite the contraction in September.

Mining output rose 0.7 percent last month, while utilities’
production dropped 1.9 percent.

Capacity utilization, a measure of slack in the economy,
edged down to 74.7 percent, 4.2 percentage points above the
year-ago level but still 5.9 points below the 1972-to-2009
average.

Although home-builder sentiment rose, the housing market
remains weak and an investigation into improper processing of
foreclosures carries the potential to slow its recovery as
banks hold back on planned foreclosures.

“Sales do appear to be firming somewhat, but because of the
backlog of foreclosures, it doesn’t give us much umpf in terms
of construction,” said Smith.
(Additional reporting by Corbett B. Daly; Editing by Andrea
Ricci)

RPT-WRAPUP 2-US industrial output falls, monetary easing seen