Industrial production drops 0.1 percent; manufacturing flat after long slide

WASHINGTON (AP) _ Industrial production edged down by just 0.1 percent in January, the best showing in six months, a sign that the nation's battered manufacturing sector may be pulling out of a long

Friday, February 15th 2002, 12:00 am

By: News On 6

WASHINGTON (AP) _ Industrial production edged down by just 0.1 percent in January, the best showing in six months, a sign that the nation's battered manufacturing sector may be pulling out of a long slump.

The tiny decline reported by the Federal Reserve Friday came after output at the nation's factories, mines and utilities dropped by 0.3 percent in December. The 0.1 percent decrease was slightly smaller than many analysts expected and marked the best performance in industrial production since July, when output rose by 0.1 percent.

After decreases in 14 of the last 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.

The latest snapshot of industrial activity is consistent with other recent reports suggesting that manufacturers may be turning a corner. 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.

The Fed's report also showed that output at utilities declined 0.7 percent in January as temperatures remained unseasonably mild and mining production decreased 0.5 percent.

In another report, wholesale inflation edged up 0.1 percent in January reflecting higher prices for gasoline, cars and some food products, the Labor Department said.

The tiny advance in the producer price index, which measures prices paid to factories, farms and other producers, followed a 0.6 percent plunge in wholesale prices in December.

Excluding energy and food prices, the ``core'' rate of inflation fell by 0.1 percent in January, after being flat in December.

On Wall Street, stocks moved lower. The Dow Jones industrial average lost 32 points and the Nasdaq was off 18 in morning trading.

The latest PPI figures represented a better reading on inflation at the wholesale level than many analysts were expecting. Many had forecast a 0.2 percent rise in overall wholesale prices for last month and a 0.1 percent advance in the core rate.

Forecasters had expected overall wholesale prices to show a rise for last month because energy prices _ while still moderate _ had crept up.

Crude-oil prices firmed up somewhat in January as oil-producing nations cut production. Still, prices have largely stayed within the same broad range since November.

In Friday's report, the government said that overall energy prices rose a slim 0.1 percent in January, after dropping by 3.9 percent the month before.

The slight increase in crude-oil prices was responsible for lifting gasoline prices.

The report showed that gasoline prices in January rose 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.

Elsewhere, new-car prices rose 0.7 percent in January, the largest gain in four months, as some incentives and discounts waned. But prices for light trucks, including SUVs, fell 0.6 percent.

For all of last year, wholesale prices plunged 1.8 percent, the biggest drop in 15 years, squeezing some producers but benefiting consumers in the ailing economy.

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.