Output Drops; Wholesale Prices Rise : Economy: The data seems to be a classic example of 1970s-style stagflation. But some analysts say the numbers are distorted and thus aren’t as gloomy as they might seem.

In what one analyst called “a double dose of deadly news,” the government reported Friday that industrial production plunged 1.7% in November while wholesale prices went up 0.5%.

The drop in industrial production was the worst since the depths of the 1982 recession. Cuts by auto manufacturers accounted for about half the drop, but every major factory sector recorded some decline. The increase in November wholesale prices came despite a sharp drop in oil prices compared to previous months.

Some analysts argued that the numbers were distorted by some one-time events and thus were not as gloomy as they might at first appear. But both reports were worse than pessimistic market expectations. They raised the specter of a recession more bitter than anticipated but without the lower inflation that usually accompanies an economic slowdown.

“This was a double dose of deadly news,” said Allen Sinai of Boston Co., who has been predicting recession since well before Iraq invaded Kuwait. “The production decline was very widespread. It was almost scary.”

He added: “The inflation worry has to go away before the central bank can act.” Others agreed that the Federal Reserve may be more reluctant to stimulate the economy by lowering interest rates when inflation is climbing.

But the inflation report had a positive side also. Prices for intermediate goods--goods a step or so down the production chain from finished goods--rose a scant 0.1%, while food and energy prices at that level fell.

Crude (raw) prices fell a record 6.2%, and the price of crude energy plunged 10.3%, after three consecutive months of double-digit increases.

An example of the three stages of production would be bread for finished, flour for intermediate and wheat for crude or raw.

Shrinking industrial production, a sign of weak demand, usually tends to bring down prices. Some analysts said this is still likely to happen, since climbing unemployment and anemic retail sales will hamper the ability of manufacturers to pass on higher costs.

But on the surface, Friday’s industrial production report from the Fed and the Labor Department’s producer price index added up to a classic example of 1970s-style stagflation. The production decline, spearheaded by a huge 20% plunge in motor vehicle assemblies, was the worst since December, 1982, at the close of what had been the deepest recession since the 1930s.

At the very least, the production report underlined the Labor Department’s stark employment report a week ago, showing 200,000 factory jobs lost in November. More than a fourth of those job losses came from auto industry layoffs.

At the same time, the inflation report showed stubborn inflation for goods at the retail level, even in the face of a 2.6% drop in gasoline prices and a 7.3% drop in heating oil. Natural gas, a regulated commodity whose price movements lag the market, caught up with the Persian Gulf price panic of August and September, and its price rose 5% in November. Overall, energy prices rose 0.1%.

Food rose 0.8%, even though the price of intermediate-level food goods is declining. Economists said it was the energy-related cost of transportation that made the difference.

Excluding energy, wholesale prices rose 0.7%. Excluding food and energy, the so-called core rate rose 0.5%. That brings the annual core rate to 6.1%.

During the 12 months ending in November, the index for finished goods prices rose 7%, compared to 4.9% for all of 1989. During the one-year period ending in November, consumer food prices advanced 4.2%, while energy prices, pushed sharply higher by the gulf crisis, soared 38.4%.

Yet to some economists, the price report was not entirely the gloomy harbinger of stagflation that Sinai and other market economists lamented.

“Autos pushed it up a lot,” noted Donald Ratajczak of Georgia State University in Atlanta, a specialist in price movements. “The industry is changing its timing,” he said, explaining that new-model prices were delayed into November, and at the same time the industry removed price incentives unexpectedly granted in October. Those two factors played havoc with the Labor Department’s seasonal adjustments, he said, kicking up car prices 1.8% last month after an apparent 2.7% plunge in October.

Similarly, tobacco manufacturers anticipating big retail price increases in January after the new federal excise taxes are imposed, moved earlier than usual with their annual wholesale price adjustments. That produced an increase of 3.7% in November.

“This was not as bad as it looks,” said David Wyss of DRI/McGraw Hill, a Lexington, Mass., forecasting firm. “That 0.5% worries people, but if you look at the details, it’s cars and tobacco. But intermediate prices are almost flat, and crude prices were down.”

Part of the crude price decline reflected continuing disinflation in raw industrial materials, a tendency that has been under way for months and one some economists have said foreshadowed the current steep economic slowdown. Summed up Wyss: “There’s no two ways about it. This is recession.”

PRODUCER PRICE INDEX For finished goods Seasonally adjusted change from prior month Nov., ‘90: +0.5% Oct., ‘90: +1.1% Nov., ‘89: +0.1% CAPACITY UTILIZATION Seasonally adjusted percent of total capacity Nov., ‘90: 80.9% Oct., ‘90: 82.4% Nov., ‘89: 83.0%