U.S. industry still weak, inflation down

U.S. industrial output shrank for a fifth straight month in December and consumer prices fell, according to two reports that highlighted the economy's fragility. The Federal Reserve's closely watched gauge of industrial production dropped 0.1 percent in December after a 0.4 percent decline in November. The latest drop capped a year in which industry output plunged 3.9 percent, the biggest fall since 1982.A separate report from the Labor Department showed a 0.2 percent drop in U.S. consumer prices, which was led by plummeting energy costs. Excluding food and energy, the closely watched core CPI rose 0.1 percent."If we add up all the statistics we've gotten recently, they are still reflecting the economy was in a recession in December," said Brian Fabbri, chief economist at BNP Paribas in New York. "The outlook going forward is the production side of economy will probably start to improve in the first half of the year.”The two economic reports bolstered already widespread expectations for a quarter-percentage point cut in short-term U.S. interest rates when the Federal Reserve next meets on Jan 29-30.U.S. Treasury prices ended the day flat after initially climbing as hopes for another interest rate cut by the Fed later this month were supported by the data.Although some data trickling in lately have offered hope, Federal Reserve Chairman Alan Greenspan has warned that dangers remain and it is too soon to feel confident about a return to steady growth.The production data offered a reminder of the weaknesses that still exists. Businesses in December ran at only 74.4 percent of full capacity, down from 74.5 percent in November and the lowest level of capacity utilization since April 1983. The 0.1 percent drop in industrial output contrasted with economists' expectations for an unchanged reading. In addition, capacity use was lower than the 74.6 percent figure projected by U.S. economists in a Reuters survey.Factory output fell 0.1 percent in December, after a 0.2 percent decline in November. Mining output sank 0.8 percent in December while utilities output gained 0.4 percent.Still, the report contained a few hints of strength, mostly in the auto and high-tech sectors. Auto production rose for a second straight month to a 12.33 million unit annual rate. High-tech industries, a category including computers, communications gear and semiconductors, saw output rise by 0.3 percent, the second gain in three months.