Industrial Output Continues to Rise

Industrial production in March rose for the 10th straight month, pushing factories closer to their operating limits than they have been in nearly five years, the government said Friday.

That could lead to higher prices. But analysts said they saw no justification for the “inflation mania” that has convulsed financial markets or for any sudden increase in interest rates.

The Clinton Administration agreed, predicting moderate growth for the economy this year.

Production climbed 0.5% last month, the Federal Reserve Board said, despite cutbacks by the booming auto industry and a decline in electricity output as frigid weather ended.

Production has risen every month since May, 1993.

The Fed also reported that the operating rate at industrial companies--which measures capacity use--increased 0.2 percentage points to 83.6%, the highest rate since it was 83.9% in June, 1989.

The financial markets reacted calmly to the latest figures. Bond prices firmed and stocks were higher most of the day before closing slightly lower. The Dow Jones industrial average closed at 3,661.47, down 1.78.

Analysts said factories are operating well below capacity, and they shrugged off the inflation worries that have spooked Wall Street.

“I don’t think it’s a danger sign at all,” said economist Stephen S. Roach of Morgan Stanley & Co., the New York investment house. But he said that may not be enough to calm investors who have generated “the inflation mania sweeping our markets.”

The central bank has boosted short-term interest rates from 3% to 3.5% this year, and many analysts expect another rise no later than May 17, when the Federal Reserve Open Market Committee next meets.

The fear is that manufacturers could be reaching their production limits, which could drive prices higher and fan inflation.

Industrial Production

Seasonally adjusted index; 1987 = 100

March 1944: 115.6

Source: Federal Reserve Board