WASHINGTON (AFP) - More troubling US economic data surfaced Thursday showing the banking and credit crisis has taken a sharp bite out of the manufacturing sector. The Federal Reserve reported US industrial production plunged 2.8pc in September, the steepest decline since 1974. A large portion of the decline came from industries affected by hurricanes Gustav and Ike in the US Gulf coast and a strike at aircraft maker Boeing, but analysts said the figures were nontheless grim for an economy already reeling from a housing meltdown and credit crunch. "Today's industrial production report was one of the worst ever," said Aaron Smith at Economy.com. Smith said that despite the special factor such as hurricanes curbing energy production, "these technical considerations merely added to widespread weakness in manufacturing that is consistent with recession-like behavior." A separate report by the Philadelphia Federal Reserve on factory activity in the mid-Atlantic eastern region also showed extremely weak condtions. The index plunged 41 points " its biggest drop ever " to minus 37.5, the worst level since 1990. John Ryding at RDQ Economics said the horrific conditions in the manufacturing sector reflect the problems with credit, weak consumer spending and troubles in the global economy, which is no longer able to buy as many US-made goods. The latest reports "provide some degree of support to our skepticism of the Fed's claim that all of the decline in industrial activity in September was a result of the Boeing strike and the hurricanes," Ryding said. "In our opinion, economic activity deteriorated sharply later in the third quarter and into the fourth quarter, probably reflecting tightening credit conditions and a significant slowing in global markets." The factory reports came a day after an unusually bleak report on US retail sales, which represents the bulk of US economic activity, which heightened anxiety about a consumer-led recession in the United States. Most economists say the extraordinary efforts by Washington and other governments to stem the credit crisis appear to be helping confidence but will not prevent recession in the world's biggest economy. "Recession is on its way," said Carl Weinberg, chief economist at High Frequency Economics. "The seeds of recession germinated during the (credit) crisis and the likelihood is that most of the world " although not China " will be in recession long after the uncertainty about the world's banking sector has dissipated." The news from the banking sector was hardly reassuring. US bank giant Citigroup reported a third-quarter loss of 2.8 billion dollars Thursday, its fourth straight quarter in the red, as it wrote off more losses linked to the real estate collapse. Wall Street bank Merrill Lynch, which is being acquired by Bank of America, said its losses more than doubled in the third quarter, to 5.2 billion dollars, on writedowns of nearly 10 billion dollars. The only mildly positive news came from data showing US consumer prices were flat in September. But analysts said this reflected the credit crisis and falling energy costs. Many analysts say the surge in inflation earlier this year, which raised fears of stagflation, has now faded in the face of economic blows from a global credit crisis. The Federal Reserve earlier this month cut its base rate a half-point to 1.5 percent, reversing its posture leaning toward a rate hike to curb inflation earlier in the year. Some say the Fed may have to cut rates further to jump-start a moribund economy that will push prices down further. "The combination of rising unemployment, restrained household spending and weak industrial production are a toxic mix for inflation," said Joseph LaVorgna, economist at Deutsche Bank. "As these conditions worsen in the coming months " as we believe they will " price pressures will face significant downdrafts."