Output at factories, mines and utilities dropped 1.4 percent last month and fell 11 percent since February 2008, the biggest year-over-year decline since 1975, the Federal Reserve said today in Washington. A report from the New York Fed showed manufacturing kept plunging this month.

Business spending “will be a major 2009 problem,” said Ken Mayland, president of ClearView Economics LLC in Pepper Pike, Ohio. “This period of maximum economic stress has a couple more months to run.”

Fed policy makers are meeting over the next two days to come up with additional measures to unclog the frozen credit markets that are choking off investment. Most stocks fell, erasing earlier gains, over growing concern that rising credit- card defaults will stymie any improvement in consumer spending.

The amount of factory capacity in use slumped to 70.9 percent in February, the Fed’s report showed, matching the lowest level on record.

Economists forecast industrial production would drop 1.3 percent, according to the median projection in a Bloomberg News survey of 68 economists. Estimates ranged from declines of 2.2 percent to 0.3 percent.

New York Factories

Another report today showed manufacturing in New York state contracted in March at the fastest pace on record as orders, sales and inventories plunged. The Fed Bank of New York’s general economic index dropped to minus 38.2, the lowest level since data began in 2001, from minus 34.7 in February.

Following meetings over the weekend, finance ministers from the Group of 20 nations said they would work together to help global banks recover from more than $1.2 trillion in credit losses. Bernanke said in an interview broadcast on CBS Corp.’s “60 Minutes” yesterday that, should the government succeed in stabilizing the financial system, the recession will probably end this year and the economy will expand in 2010.

The Standard & Poor’s 500 index reversed early gains to close down 0.4 percent at 753.89, ending a four-day rally that took the index up 12 percent. Treasury securities dropped, sending the yield on 10-year notes to 2.95 percent at 4:31 p.m. in New York from 2.89 percent late Friday.

Factory output, which accounts for about four-fifths of industrial production, decreased 0.7 percent, led by declines in furniture, appliances, machinery and computers.

Second Lowest Ever

Motor vehicle and parts production improved 10 percent in February after plummeting 25 percent the prior month, the report showed. Automakers assembled cars and light trucks at an annual rate of 4.73 million during the month, second only to the 3.83 million assembled in January as the weakest since records began in 1967.

Excluding automobiles, factory output dropped 1.2 percent.

Hopes that the recession is about to end “are not supported by these nasty figures,” said Roger Kubarych, chief U.S. economist at UniCredit Global Research in New York. “To be sure, it is useful for the auto industry to stop its freefall, but no other industry showed much strength.” Business investment is “falling at blistering rates,” he said.

The auto industry is at the center of the manufacturing slump. Car sales in February slid 41 percent to the lowest rate since December 1981, according to Autodata Corp., led by a 53 percent drop for General Motors Corp.

‘Severe’ Crisis

“This remains a very challenged industry that is the reflection of the severe economic crisis,” Mike DiGiovanni, chief auto market analyst at GM, said on a conference call last week.

Pittsburgh-based PPG Industries Inc., the world’s second- biggest paint maker, last week said it will cut an additional 2,500 jobs because of the decline in auto sales.

Others are suffering from slumping demand, both here and abroad. American exports plunged in January to the lowest level since 2006, according to figures from the Commerce Department last week. The drop reflected falling sales of automobiles, semiconductors, telecommunications gear and drilling equipment.

Boeing Co. is slashing about 10,000 jobs and has said it could cut production by about 10 percent next year if more bookings are deferred or canceled. The Chicago-based plane maker has won just 22 orders this year, down from 190 by this time in 2008, and has logged 32 cancellations.

Job Cuts

United Technologies Corp., the maker of Otis elevators and Carrier air conditioners, said last week it plans to cut 11,600 jobs as sales slow.

Economists surveyed by Bloomberg say the economy may shrink at a 5.2 percent pace in the current quarter after a 6.2 percent contraction in the previous three months that was the worst since 1982.

“Reports on manufacturing activity suggested steep declines in activity in some sectors and pronounced declines overall” in January and February, the Fed said March 4 in its latest regional business survey. “The drop in activity was especially pronounced for makers of capital goods and construction-related equipment and materials.”

 SOURCE: Bloomberg