Reports Mute Hopes of Quick Recovery
U.S. consumer confidence fell this month and industrial production declined in January, evidence that the economy may be slow in gaining strength.
The University of Michigan’s consumer sentiment index for February fell to 90.9 from 93 last month, a drop that analysts attributed to worries that Enron Corp. is not the only company to issue misleading financial reports. The Federal Reserve’s index of work performed by factories, mines and utilities declined 0.1% in January, the 15th drop in 16 months.
Neither decline is likely to doom the rebound, propelled by the fastest pace of inventory reduction on record and a rate of consumer spending unsurpassed in almost two years.
The producer price index rose 0.1% in January, the Labor Department reported. It was the first increase in four months and was led by the biggest rise in food costs in almost a year; the index declined 0.5% in December.
Excluding food and energy, the index fell 0.1% after no change in December. Producer prices were 2.6% lower than in January 2001, the biggest 12-month drop since February 1950.
The prospect of tame inflation for goods and materials will make it easier for Fed policymakers to hold down interest rates until the expected rebound takes hold, and Friday’s reports contained reasons for optimism.
“I don’t expect to be confronting a serious inflation problem in the next several quarters, so my foot is not on the brake,” said Gary Stern, president of the Fed Bank of Minneapolis. Stern is a voting member of the rate-setting Federal Open Market Committee.
Though confidence fell, it was the first decline in five months, and the January reading of 93 was the highest in a year. The current conditions index, which reflects Americans’ perception of their financial situation and their willingness to spend on furniture and home appliances, rose to 97.2 from 95.7. The expectations index, based on optimism about the next one to five years, fell to 86.8 from 91.3.
The production report gave signs that manufacturing was gaining strength. The decline was the smallest since a 0.1% increase in July, manufacturing itself was unchanged, the manufacture of business equipment rose for the first time since the factory slump began a year and a half ago, and more semiconductors were made.
Business equipment production rose 0.4%--the first increase since August 2000--after a 1.7% decline a month earlier. Production of computers, communications equipment and semiconductors rose 0.6% after being unchanged in December.
