Manufacturers Express Concern Over Prospect of Higher Interest Rates : Economy: As Fed members consider a further increase, they look at data on plant use, which hit a 5-year high in August.

The National Assn. of Manufacturers says its members are concerned about the prospects of higher interest rates as Federal Reserve officials prepare to meet Tuesday to chart their battle plan against rising prices.

In light of economic indicators that point to the threat of accelerating inflation, some economists--including Bear, Stearns & Co. chief economist Wayne Angell, a former Fed governor--expect another Fed increase in the overnight bank lending rate in an attempt to cool the economy.

Those economists say the Fed’s rate-setting Open Market Committee will raise by 50 basis points the federal funds rate on inter-bank loans and the discount rate charged on borrowing from the Federal Reserve by its member banks.

That’s not welcome news for manufacturers’ association members, who are enjoying increased demand and improved earnings. As they wound up a meeting in the nation’s capital, NAM members participating in a poll urged the Fed not to raise rates a sixth time this year.

“The overwhelming majority believe that the Fed should hold interest rates at current levels or delay any further action until late this year or next year,” association President Jerry Jasinowski told the New York Times.

To be sure, other businesses believe the economy could withstand another rate increase without dramatically slowing demand for goods and services.

Orville Harrold, for example, president of the Providence & Worcester Railroad in Worcester, Mass., said in a recent interview that as long as the prime rate remains below 10%, business conditions will be favorable.

On Aug. 16, the Fed raised the discount rate to 4% from 3.5% and the federal funds rate to 4.75% from 4.25%. Within minutes, major banks followed suit by raising their lending rates to their most credit-worthy corporate customers a half percentage point to 7.75%--the highest in almost three years.

As they consider whether to increase rates further, Fed members pay attention to plant-use rates, which in August showed factories, mines and utilities operated at 84.7% of capacity--a five-year high.

Such a high level suggests higher labor and production costs for companies--costs that are passed on to consumers in the form of higher prices, said Kevin Flanagan, an economist at Dean Witter Reynolds in New York.

In fact, when the Fed raised rates in August, it cited the rising plant-use rate as the main reason for its decision.

On Friday, though, Treasury Secretary Lloyd Bentsen urged against reading too much into the plant-use figure. “You are seeing substantial growth” in factory use, Bentsen said, but he pointed out that manufacturing accounts for only a portion of the economy. “We’re always concerned about inflation, but I don’t see any deepening concern at this point,” he said.

Indeed, some analysts believe the Fed won’t raise rates until October--or even November--after it gets more figures on the economy: namely employment, producer prices, consumer prices and the plant-use rate.