Some evidence slump is ending

Industrial output has smallest decline in past 6 months

But consumer gloom lingers

February 16, 2002|By Susan Chandler | Susan Chandler,SPECIAL TO THE SUN

The U.S. economy showed further signs of recovery in January, but American consumers were more pessimistic that better times are on the way.

Industrial production edged down by 0.1 percent last month, the smallest decline in six months and a sign that the nation's battered manufacturing sector may be pulling out of its prolonged slump.

U.S. wholesale prices edged 0.1 percent higher during the month, the Labor Department said, reversing a three-month string of declines in the Producer Price Index and underscoring the lack of inflationary pressures in the economy.

"The basic message is that, for right now, inflation is off the Fed's radar screen and probably investors' radar screens as well," said Paul Kasriel, chief economist with Chicago's Northern Trust Co. The Federal Reserve "certainly feels no compelling reason over the next several months to raise interest rates - or lower them, either," he said.

Despite January's upbeat message for the nation's borrowers and homebuyers, U.S. consumer sentiment took a step in the other direction in early February.

The University of Michigan's preliminary February consumer sentiment index fell to 90.9 from 93.0 in January, stumbling for the first time in five months as extensive coverage of Enron's accounting scandal depressed hopes for a speedy economic turnaround.

The sentiment index is closely watched by economists and investors because consumer spending accounts for two-thirds of the U.S. economy.

The university's current conditions index, which measures consumers' attitudes about their present financial situation, rose slightly to 97.2 in early February from 95.7.

But the expectations index, which tracks attitudes about the year ahead, fell to 86.8 from 91.3 in January, when it surged 12 points. Still, the index remained far above the 75.5 reading in October after the Sept. 11 terrorist attacks.

Some economists discounted the decline, viewing it as blip caused by stock market volatility and fears about accounting standards in corporate America.

"I'm more inclined to look at what consumers are doing than what they're reporting," Kasriel said. "The early February read on nonauto retail spending is pretty good. We saw a healthy increase in retail spending."

Indeed, the falloff in economic expectations doesn't jibe with the increasing signs that the economy is pulling out of its swoon. New claims for unemployment insurance declined for the second week in a row, the Labor Department reported Thursday, a sign that employers may be cutting back on layoffs.

Separately, the government said yesterday that business inventories fell for the 11th straight month in December, which means that manufacturers soon should be receiving new orders to restock empty shelves.

Susan Chandler is a reporter for the Chicago Tribune, a Tribune Publishing newspaper.

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