Finance news. My opinion.

Industrial production contracted the least since October last month and New York’s manufacturing slump eased further in May, signaling the recession’s grip is loosening.

Output at U.S. factories, mines and utilities decreased 0.5 percent last month, less than forecast, after dropping 1.7 percent in March, Federal Reserve figures showed today in Washington. The New York Fed’s Empire state manufacturing index rose to minus 4.6, also beating economists’ estimates.

Today’s figures signal that manufacturing is bottoming out after companies slashed their stockpiles of unsold goods the most on record in the first three months of the year. Continued weakness in consumer spending means demand is too low for firms to raise prices: government figures today showed the consumer price index was unchanged in April after a March drop.

“This is another signal that suggests the biggest pocket of weakness in the overall economy was the fourth quarter and the first quarter,” said John Herrmann, chief economist at Herrmann Forecasting in Summit, New Jersey, referring to the manufacturing reports. “Weakness is dissipating and the economy is poised to grow in the second half.”

Stocks Fall

Stocks closed down, reversing gains following the reports, after Federal Deposit Insurance Corp. Chairman Sheila Bair’s prediction that the heads of some banks may lose their jobs sent financial shares lower. The Standard & Poor’s 500 Stock Index fell 1.1 percent to end at 882.88. Yields on benchmark 10-year notes climbed to 3.13 percent at 4:29 p.m. from 3.09 percent late yesterday.

The Treasury said separately today that international demand for U.S. financial assets gained in March, when American stocks and government bonds rallied as the Federal Reserve stepped up its campaign to end the credit crisis. Foreign net purchases of long-term equities, notes and bonds rose to $55.8 billion, the highest level since September.

Consumer sentiment improved for a third straight month in May, a private survey showed. The Reuters/University of Michigan preliminary index of consumer sentiment rose to 67.9 from 65.1 in April. The index reached a three-decade low of 55.3 in November.

Companies from Gap Inc. to Toyota Motor Corp. are keeping a lid on prices to draw buyers amid the deepest recession in five decades. Toyota, the world’s largest automaker, last month cut the base price of its Prius hybrid by $1,000 to help beat back competition from Honda Motor Co.’s gasoline-electric Insight.

Retail Discounts

Gap’s Banana Republic chain advertised 50 percent off accessories, while American Eagle Outfitters Inc. promoted shorts for less than $25.

Excluding food and fuel, costs climbed a greater-than- forecast 0.3 percent, almost half of which reflected an increase in excise taxes on cigarettes, the Labor Department said today in Washington.

From a year ago, consumer prices fell 0 fast payday loans.7 percent, the biggest decline since 1955. Excluding food and energy, prices climbed 1.9 percent from April 2008.

Consumer prices were forecast to be unchanged on a monthly basis, according to the median of 71 estimates in a Bloomberg News survey. Costs excluding food and energy were expected to rise 0.1 percent. Last month’s increase was the biggest since July.

Energy costs fell 2.4 percent in April, led by decreases in gasoline and natural gas. Food prices dropped 0.2 percent as costs for dairy products and non-alcoholic beverages fell.

Goods, Services

The CPI is the broadest of three monthly price gauges from Labor because it includes goods and services. Almost 60 percent of the CPI covers prices consumers pay for services ranging from medical visits to airline fares and movie tickets.

New vehicle prices and medical care costs both climbed 0.4 percent, while tobacco jumped 9.3 percent. Increases in vehicle prices may not last much longer. Automakers are among companies cutting prices or enhancing incentives in a bid to revive plunging demand.

Wages increased 0.1 percent after adjusting for inflation, and were up 2.6 percent over the last 12 months, matching the year-over-year increase in March.

Fed officials project that inflation will remain contained because of the large amount of unused capacity in the economy, in both the labor market and manufacturing. Today’s industrial- production report showed that the capacity utilization rate fell to a record low of 69.1 percent in April.

Better Than Forecast

Economists forecast industrial production would fall 0.6 percent, according to the median of 66 projections in a Bloomberg survey, after an initially reported 1.5 percent drop in March.

Motor vehicle and parts production climbed 1.4 percent in April after increasing 0.3 percent the prior month, today’s report showed. Those increases are unlikely to be sustained in coming months as sales fall and Chrysler LLC and General Motors Corp. shut plants to reduce inventories.

Chrysler, whose U.S. sales tumbled 48 percent in April from the same month last year as bankruptcy neared, said last week it will offer rebates of as much as $6,000 to boost demand. The Auburn Hills, Michigan-based company on May 1 idled its 22 U.S. plants, which had about 26,800 hourly workers, and auto parts suppliers also are likely to cut jobs as they shut factories.

General Motors Corp., facing a U.S.-imposed June 1 deadline to restructure or file for bankruptcy, said last week it plans to idle, partially or completely, as many as 23 stamping, engine and transmission plants through July. The temporary closings are in conjunction with GM’s plan, announced last month, to idle 13 assembly plants for as long as nine weeks in the same period.

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