Factory output drop surprises forecasters

Washington - Industrial production unexpectedly fell in August by the most since March 2009, highlighting risks to the economic outlook a day after the Federal Reserve boosted record stimulus.

The 1.2 percent decrease at factories, mines and utilities followed a revised 0.5 percent gain in the prior month, figures from the Fed showed Friday. The median estimate in a Bloomberg survey of 81 economists called for no change. Another report showed purchases cooled at retailers excluding auto dealers and gasoline service stations.

A global economic slowdown is restraining demand for U.S. exports, making it harder for companies like Texas Instruments and Dow Chemical to expand sales. Manufacturers are also challenged by the prospect of budget cuts and tax increases set to take effect at the end of the year and consumer spending that's hampered by 8 percent unemployment.

"Manufacturing is losing momentum," said Joshua Shapiro, chief U.S. economist at Maria Fiorini Ramirez in New York. "Exports will weaken further, and the consumer is in a very tough position. "

Demand for riskier assets after yesterday's announcement that the Fed would buy mortgage securities sparked a global rally in stocks and commodities.

Another report Friday showed confidence among U.S. consumers unexpectedly improved in September, boosted by gains in stock prices and home values.

The Thomson Reuters/University of Michigan preliminary index of consumer sentiment climbed to 79.2 from 74.3 the prior month. The gauge was projected to fall to 74, according to the median forecast of 71 economists surveyed by Bloomberg News.

Retail sales minus autos and gasoline increased 0.1 percent in August, less than forecast, after a 0.8 percent gain in July, the Commerce Department said Friday in Washington. Overall purchases increased 0.8 percent after a 0.6 percent advance.

Higher food and fuel costs along with smaller gains in payrolls and wages may take a toll on household finances, posing a challenge for merchants such as Kohl's Corp. and Macy's Inc.

Gasoline prices are taking a toll. Regular-grade gas prices have climbed to an average of $3.87 per gallon, up 54 cents since the start of July, according to AAA.