Wholesale Prices Drop in February; So Does Industrial Production

Wholesale prices and industrial production both declined during February, the government announced Friday, but the mixed performance still left many experts convinced that the business outlook is healthy for the year.

The Labor Department said overall wholesale costs fell 0.1%, led by lower prices for meat and gasoline, in a report that bolstered the belief that inflation no longer poses an immediate threat to the economy. Wholesale prices had been unchanged in January.

However, the welcome news about prices was tempered by the Federal Reserve Board’s report that industrial production fell 0.5% during February, compared to a gain of 0.3% in January. But at least part of last month’s decrease was caused by interruptions in production stemming from bad weather, the Federal Reserve noted.

No Recession Indicated

“The underlying trend (of economic performance) is pretty strong,” said C. Fred Bergsten, president of the Institute for International Economics, a Washington research organization. “Industrial production bounces around a lot, but the figure doesn’t seem to presage any fundamental change as the year continues.”

The drop “does not indicate a recession but reflects a moderate inventory correction and the effects of a growing trade deficit,” said Jerry Jasinowski, executive vice president and senior economist of the National Assn. of Manufacturers.

The dollar, rising in value compared to other currencies, makes imports cheaper for American consumers but raises the price of U.S.-made goods sold to foreign buyers. Competition from foreign goods helps restrain inflation in this country, generally benefiting consumers.

But specific industries--notably autos, steel and chemicals--are troubled by imports, and overall industrial output--the production from the nation’s mines, mills and factories--therefore is running at lower levels because of the recent surge in the dollar.

“We are vastly under-utilizing our industrial facilities,” said Jeff Faux of the Economic Policy Institute, a Washington research organization. “We can’t expect this to continue for very long without the unemployment rate turning up again.”

Gains Revised Downward

In the latest Federal Reserve report, the initial gains in industrial output during November, December and January all were revised downward. During February, according to the report, “declines were widespread in manufacturing,” and the output of automobiles, business equipment and construction supplies all fell.

Despite the competitive problems faced by domestic manufacturing industries, most outside observers and Reagan Administration officials believe that the overall economic expansion will persist this year.

The gross national product, which measures the total delivery of goods and services, should expand between 4% and 5% during 1985, said Ronald Utt, associate chief economist at the U.S. Chamber of Commerce.

February’s downturn in industrial production means that businesses “may be working off some of their inventories built up last year,” he added.

This disposal of goods on warehouse shelves, accompanied by a “flood of imports,” also helps keep wholesale prices down, Jasinowski noted. Wholesale inflation is measured through the government’s producer price index, which depends heavily on changes in the cost of basic commodities such as food and energy.

For individual Americans, the more appropriate yardstick is the consumer price index, a broader measurement including not only commodities and goods but also a broad range of services.

Because services such as medical care and educational costs are subject to stronger inflationary impulses than are basic commodities, the cost of living may keep rising although wholesale prices may remain stable or even decline. Consumer prices are expected to rise about 4% this year, matching the 1984 pace.

Wholesale food costs dipped 0.1% last month as prices fell for beef and veal, pork, poultry and fish. But costs soared 9.1% for fresh fruit and 4.6% for vegetables, reflecting the scarcities caused by the winter’s crop freezes in Florida.

Gasoline prices dropped 3.4%, while automobile costs rose 1%.