Industrial production surges in January; Business inventory report from December shows promise

Friday, February 14th 2003, 12:00 am

By: News On 6

WASHINGTON (AP) _Industrial production roared back to life in January, rising by 0.7 percent while businesses boosted their stockpiles of unsold goods the month before _ a pair of promising signs for an ailing economy.

The latest snapshot of activity at the nation's factories, mines and utilities _ the sector of the economy hardest hit by the 2001 recession _ showed an impressive rebound.

The 0.7 percent over-the-month jump in industrial activity marked a turnaround from the steep 0.4 percent drop registered in December, the Federal Reserve reported Friday.

January's increase marked the best performance since July when industrial activity also rose by 0.7 percent. The strong showing surprised economists, who were predicting a 0.3 percent advance.

The industrial sector has been the weakest link for the economy's ability to get back to full throttle, but Friday's report offered hope that the battered sector may seeing more better days ahead.

The increase in business inventories was the largest in three months as retailers apparently were betting that cautious consumers would have a stronger appetite to spend during the holidays.

December's increase was two times bigger than the 0.3 percent boost in supplies of unsold goods on shelves and back lots, which was recorded in November, the Commerce Department said in a second report Friday.

At the same time, business sales edged up by 0.2 percent in December, up from a 0.1 percent rise.

On Wall Street, the pair of economic reports gave stocks a lift. The Dow Jones industrial average was up 13 points and the Nasdaq was up 4 points in the first half-hour of trading.

At factories, which account for most industrial output tracked by the Fed, production rose by a solid 0.5 percent in January, largely reflecting a boost in automobile production. That marked a big improvement over the 0.4 percent drop in factory output registered in December.

Production at gas and electric utilities jumped by 4 percent last month, compared with a 1.4 percent drop in December, as demand was stoked by colder weather.

At mines, however, production fell by 1.2 percent, more than reversing a 1 percent gain posted in December.

The economy has been coping with uneven growth as a quarter of strength has been followed by a three-month period of weakness. And businesses have been struggling, especially, to try and gauge demand for their goods during these muddled economic times.

The biggest factor holding back the economy's recovery: Businesses have been reluctant to make big commitments in hiring and in capital spending, due in part to uneasiness about the possibility of war and also generally to an uncertain business environment.

Federal Reserve Chairman Alan Greenspan told Congress this week he was hopeful that once such ``geopolitical'' uncertainties lift, businesses would be much more willing to step up capital investment and hiring, forces that would boost economic growth.

Against that backdrop, Greenspan said President Bush's proposed 10-year, $1.3 trillion tax-cut package isn't needed to stimulate the economy, dealing a blow to the president's efforts to sell the plan to Congress.

The 0.6 percent increase in inventories was stronger than the 0.2 percent rise economists were predicting and represented the biggest boost since September.

Even though December's increase marked the eighth straight month that businesses have added to their stockpiles, economists say that the levels are still lean, reflecting companies' wariness about the economic climate.

In the inventories report, retailers boosted supplies by 0.6 percent in December and sales rose by a solid 2 percent.

Factories saw their stockpiles rise by 0.5 percent in December as sales slid by 0.6 percent. At wholesalers, supplies rose by 0.8 percent as sales fell by the same amount.

The Fed last month decided to leave a key interest rate at a 41-year low of 1.25 percent, with the hope that will encourage consumers and businesses to spend and invest more and help along the recovery.

In addition to Friday's industrial production report, there have been some other hopeful signs for the economy recently.

Retail sales for merchants other than car dealers were solid in January, suggesting that consumers _ the main force keeping the economy going _ still have an appetite to spend even amid all the global and economic turmoil.

And, the nation's unemployment rate dipped to 5.7 percent in January as the economy added 143,000 jobs, the largest amount since November 2000.