Industrial production slips in January

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Posted 9:52AM on Sunday, February 17, 2002

WASHINGTON - Industrial production dipped in January by just 0.1 percent, the smallest decline in six months, raising hopes that the nation's beleaguered manufacturing sector may be edging toward a recovery. The small decline in output at the nation's factories, mines, and utilities followed a steeper 0.3 percent drop in December, the Federal Reserve reported Friday. After decreases in 14 of the past 15 months, factory output was unchanged in January. A substantial rebound in steel production was one of the factors preventing another drop in manufacturing production, the Fed said. Furniture, industrial machinery and stone, clay and glass products also posted production gains, as did business equipment, computers and semiconductors. The Fed's report ``can be added to the growing list of indicators that point to a possibility of a recovery in manufacturing early in 2002,'' said National Association of Manufacturers President Jerry Jasinowski. The Institute for Supply Management reported stronger manufacturing activity in January, and government reports have shown that factories are seeing more demand for big-ticket goods. That's all promising news for the manufacturing sector, which has been mired in a 1 1/2-year-long slump. Another report showed that inflation at the wholesale level remains under control. The Labor Department said prices paid to factories, farms and other producers edged up 0.1 percent in January, after falling by 0.6 percent in December. Higher prices for gasoline, other energy products and food accounted for much of the advance. Excluding volatile energy and food prices, the ``core'' rate of inflation fell 0.1 percent in January after being flat in December, suggesting that most other prices were well-behaved. ``There is no reason to worry about inflation,'' said Merrill Lynch economist Gerald Cohen. For the 12 months ending Jan. 31, wholesale prices have fallen 2.6 percent, the biggest drop since 1950. Because of the tame inflation environment, the Federal Reserve was able to cut interest rates 11 times last year, in an effort to lift the economy out of recession. Last month, the Fed opted to leave interest rates unchanged and cited signs of a recovery as the basis for its decision. Many economists predict the Fed's aggressive rate-cutting will pave the way for solid economic growth in the second half of this year. In the meantime, analysts expect companies will continue to find it difficult to raise prices, which should keep inflation in check in the coming months. But on Wall Street, the latest batch of economic news did little to ease anxiety among investors. The Dow Jones industrial average lost 98.95 points to close at 9,903.04. To cope with the economic slump, manufacturers and other businesses have sharply cut production, discounted merchandise and let workers go. Even though industrial production slipped in January, the 0.1 percent decline marked the best showing since July, when output rose 0.1 percent. ``Can the long-awaited bottom in manufacturing finally be here?'' asked economist Joel Naroff of Naroff Economic Advisors. ``We may have finally gotten the signal we were looking for.'' Economists were particularly encouraged by production gains in business equipment and some high-tech products, areas that were hard hit when companies slashed capital spending, a key factor in the national economy's weakness. Helping to hold back overall industrial production in January was a 0.7 percent drop in output at utilities, which reflected mild weather during the month, and a 0.5 percent decrease in mining output. In the inflation report, forecasters had expected overall wholesale prices to show a rise for last month because energy prices - while still moderate - had crept up, in part reflecting production cuts by oil-producing nations. Energy prices rose a slim 0.1 percent in January, after dropping 3.9 percent the month before. Gasoline prices increased 3.4 percent and heating oil went up 4.9 percent. Prices for liquefied petroleum gas, such as propane, increased 9 percent, the largest advance since October 2000. Residential natural gas prices rose 1.7 percent, the biggest rise in a year. But prices for residential electric power fell a record 1.4 percent. Food prices, meanwhile, rose 0.8 percent in January, after being flat in December. Higher prices for eggs, vegetables, chickens, fish and dairy products outweighed lower prices for beef, veal and fruits.