Factory Output Takes a Surprising Turn Up
Industrial production, which has been bearing the brunt of the economic slowdown, rose in March for the first time in six months, government figures showed. Economists welcomed the good news but weren’t ready to declare victory against recession.
The sluggish economy, meanwhile, is helping on the inflation front. Consumer prices were nearly flat last month as energy prices retreated, according to another government report.
With inflation posing little risk to the economy, the Federal Reserve has room to continue cutting interest rates in an effort to rejuvenate the manufacturing sector as well as the larger economy, analysts said Tuesday.
After five straight months of declines, output at the nation’s factories, mines and utilities went up by 0.4% in March, the first increase since September, the Federal Reserve said. The performance surprised many analysts who were predicting another drop, and it raised fresh hope that the economy may be bouncing back.
In March, factory output grew by 0.3%, led by a jump in car production. Gas and electric utilities increased production by 1.1%, and mining went up by 0.8%. In February, total industrial output dropped by 0.4% as production at factories and utilities fell and mining output rose.
“The industrial sector has stopped its free fall,” said Joel Naroff, president of Naroff Economic Advisors. “If manufacturing starts looking up, the impression of an economy in recession will disappear quickly.”
The weak economy has been hardest on the industrial sector, which many believe has been suffering through its own recession. The Fed said that in the first three months of this year, industrial production contracted at an annual rate of 4.7%, the biggest quarterly decline since the first quarter of 1991, when the country was in a recession.
One sector that has managed to hold up fairly well is housing. A third report Tuesday showed that housing construction fell by 1.3% in March to an annual rate of 1.61 million units, a still-healthy level. Low mortgage rates have helped keep the market stable.
Trying to stave off recession, the Fed has cut interest rates three times this year, totaling 1.5 percentage points. The lower rates are aimed at boosting economic growth.
But more needs to be done to help bolster growth, the Bush administration said. President Bush “believes it’s important to cut taxes because of the permanent effect that a tax cut will have on the strength of the economy,” White House spokesman Ari Fleischer said.
Economists expect the Fed to cut interest rates again at its meeting May 15. But the industrial production report greatly diminished the odds of the Fed lowering rates before then, economists said.
The Labor Department reported that its consumer price index, the government’s most closely watched inflation gauge, edged up 0.1% in March, the smallest rise in seven months. In February, the index increased 0.3%.
The good inflation reading was led by a 2.1% drop in energy prices, which have risen sharply over the last year because of production limits and strong demand.
But March’s decline in energy prices might provide little comfort to Americans who have been hit with sharply higher bills for heating their homes and fueling their cars.
Natural gas prices fell by 2.1%, gasoline prices by 3.8% and home heating oil by 3.0% last month. Even though natural gas prices have eased since peaking in December, costs remain much higher than they were in the winter of 1999.
Gasoline prices in April are already on the rise. Experts say there’s a high probability that motorists this summer will pay more for gasoline than the average $1.53 a gallon they paid last summer.
Prices for “core” goods, which exclude the volatile food and energy sectors, moderated a bit, rising 0.2% in March after a 0.3% increase the month before. Prices for prescription drugs and clothing continued to rise, but not as fast as they did in February. Food prices crept up 0.2%, less than the 0.5% rise in February.
Consumer prices in the five-county Los Angeles area and in the 13-state Western region rose far faster last month than the national average, mainly because of increased housing costs.
In Southern California, prices were up 0.5%, following a 0.7% gain in February. In the Western states, consumer prices were up 0.4%, following a 0.6% rise in February.
(BEGIN TEXT OF INFOBOX / INFOGRAPHIC)
Consumer Price Index
Monthly percentage change, seasonally adjusted:
March: 0.1%
Industrial Production
Index: 1992=100; seasonally adjusted:
March: 146.5
