Industrial production up 0.4 percent in February, producer prices rise 0.2 percent

Friday, March 15th 2002, 12:00 am

By: News On 6

WASHINGTON (AP) _ Industrial production in February took the largest advance in more than a year and a half, the most dramatic sign yet that the battered manufacturing sector is on the road to recovery.

The bigger-than-expected 0.4 percent increase in output at the nation's factories, mines and utilities followed a revised 0.2 percent gain in January, which had been previously reported as a 0.1 percent decline, according to a Federal Reserve report released Friday.

The 0.4 percent gain was the largest since June 2000, when output rose by the same amount.

The latest snapshot of industrial activity provides the clearest signal yet that the manufacturing sector is pulling out of a long slump that had forced factories to sharply cut production and let hundreds of thousands of workers go.

``The cloud cover has moved,'' said Sung Won Sohn, chief economist at Wells Fargo. ``We are beginning to see sunshine.''

Stocks were a bit higher on Wall Street. The Dow Jones industrial average gained 20 points and the Nasdaq index added 4 points in the first hour of trading.

The Fed's report also showed that manufacturing production rose by 0.3 percent in February, matching a January advance that had previously been reported as flat.

Output at utilities went up 2.7 percent in February, after falling 0.3 percent the month before. Mining production sank by 0.7 percent, following a 0.3 percent decline.

The Fed's report is consistent with other recent economic data. The Institute for Supply Management reported that manufacturing activity flashed a growth signal in February. And government reports show that orders to factories for big-ticket manufactured goods, such as cars, have been picking up.

In another report Friday, higher costs for gasoline and some food items lifted wholesale inflation by a modest 0.2 percent in February.

The advance in the Labor Department's producer price index, which measures prices paid to factories, farms and other producers, came after a tiny 0.1 percent rise in January.

Excluding energy and food prices, the ``core'' rate of inflation was flat in February after edging down 0.1 percent the month before. That indicated prices outside those two volatile sectors remain under control.

For the 12 months ending in February, wholesale prices fell by 2.6 percent as the weak economy forced companies, coping with sagging sales, to either cut prices or keep a lid on increases. Declining wholesale prices have squeezed companies' profits, which really took a hit during the slump.

Wholesale prices, which had been falling since October, rose in the last two months. One of the biggest factors in this rise is higher energy prices. Crude-oil prices have firmed as oil-producing nations cut production.

In February, energy prices rose 0.4 percent, following a 0.1 percent advance in January. Gasoline prices led last month's advance, increasing 4.5 percent, the largest gain since September.

Heating oil prices rose 2.8 percent in February and prices for liquefied petroleum gas, such as propane, rose 1.7 percent. However, prices for natural gas and electric power for homes fell by 1.6 percent and 0.3 percent, respectively.

Prices for food rose 1 percent in February, on top of a 0.8 percent advance. Higher prices for vegetables, fish, beef and veal swamped lower prices for eggs, fruits and diary products.

Elsewhere in the report, prices for new cars fell 0.2 percent in February, prices for sanitary paper products dropped 0.9 percent and book-publishing costs fell 1.3 percent.

But prices for light trucks, such as SUVs, rose 0.6 percent in February, the biggest gain since July.

The long period of well-controlled inflation allowed the Federal Reserve to slash short-term interest rates 11 times last year to stimulate economic growth. The country had been ailing before it slipped into recession in March 2001.

However, the Fed, citing signs of a recovery, opted to leave rates unchanged in January and many economists expect the central bank to do the same when it meets next week. With the economy rebounding, some economists project the Fed may need to raise rates later this year if growth is so robust as to threaten a bout of inflation.