Once this message gets filtered thru Enronitis ad nauseam... it will be full speed ahead...
U.S. Economy: Confidence Slips;
Industrial Production in U.S. Declined 0.1% in January; Plant Use at 74.2
From Bloomberg
By Carlos Torres, Siobhan Hughes and Monee Fields-White
Washington, Feb. 15 (Bloomberg) -- U.S. consumer confidence fell this month, and industrial production declined in January, evidence the economy may be slow in gaining strength.
The University of Michigan's consumer sentiment index for February fell to 90.9 from 93 last month, and analysts attributed the drop to worries that Enron Corp. isn't the only company to issue misleading financial reports. The Federal Reserve's index of work performed by factories, mines and utilities declined 0.1 percent in January, the 15th drop in 16 months.
Neither decline is likely to doom the rebound, propelled by the fastest pace of inventory reduction on record and a rate of consumer spending that hasn't been exceeded in almost two years. Applied Materials Inc., the largest producer of equipment used to make semiconductors, says its orders are rising. Atlantis Plastics Inc., whose molded products go into appliances and motor vehicles, expects higher sales and profits this year.
``We're inching closer and closer to the end of the recession, but it's going to be a slow recovery back,'' said Chris Rupkey, senior financial economist at Bank of Tokyo-Mitsubishi Ltd. in New York.
The producer price index rose 0.1 percent in January, the Labor Department reported. It was the first increase in four months and was led by the biggest rise in food costs in almost a year, and followed a decline of 0.5 percent in December. Excluding food and energy, the index fell 0.1 percent after no change in December. Producer prices were 2.6 percent lower than in January 2001, the biggest 12-month drop since February 1950.
No `Serious Inflation'
The prospect of tame inflation for goods and materials will make it easier for Fed policy makers to hold down interest rates until the expected rebound takes hold, and today's reports contained reasons for optimism.
``I don't expect to be confronting a serious inflation problem in the next several quarters, so my foot is not on the brake,'' said Gary Stern, president of the Fed Bank of Minneapolis, in an interview with Bloomberg News. Stern is a voting member of the rate-setting Federal Open Market Committee.
While confidence slipped, it was the first decline in five months, and the January reading of 93 was the highest in a year. The current conditions index, which reflects Americans' perception of their financial situation and their willingness to spend on furniture and home appliances, rose to 97.2 from 95.7. The expectations index, based on optimism about the next one to five years, fell to 86.8 from 91.3.
``What we're seeing is a little worry about the stock market and Enron and all this talk about accounting problems,'' said James Glassman, chief U.S. economist at J.P. Securities Inc. in New York.
Signs of Factory Strength
Stocks fell and bonds rose after the reports. The Dow Jones Industrial Average lost 99 points, or 1 percent, to close at 9903.04, and the Nasdaq Composite Index dropped 38 points, or 2.1 percent, to end the day at 1805.19. The Treasury's 4 7/8 percent note maturing in February 2012 rose more than one-half point, pushing the yield down 7 basis points to 4.87 percent. A basis point is 0.01 percentage point.
The production report gave signs that manufacturing was gaining strength: the decline was the smallest since a 0.1 percent increase in July, manufacturing itself was unchanged, the manufacture of business equipment rose for the first time since the factory slump began a year and a half ago, and more semiconductors were made.
Business equipment production rose 0.4 percent -- the first increase since August 2000 -- following a 1.7 percent decline a month earlier. Production of computers, communications equipment and semiconductors rose 0.6 percent after being unchanged in December.
`Good Chance' Recession Over
A slump in business investment contributed to the recession, which started 11 months ago, and many economists say the rebound isn't assured unless such spending picks up. Business spending has fallen for five consecutive quarters.
The economy slipped into recession in March, the private National Bureau for Economic Research declared three months ago. A slower pace of jobless claims this year and a 1.2 percent rise in retail spending on products apart from automobiles last month point to growth.
There's a ``very good chance'' the bureau will determine the recession has ended by now, Stern of the Minneapolis Fed said. Still, growth may very well be ``rather subdued'' in the first quarter or two of recovery.
The economy probably will expand at a 1.6 percent annual pace between January and March after growing at a 0.2 percent rate in the fourth quarter, according to the latest consensus forecast in the Blue Chip Economic Indicators survey. Inventories shrank in the final quarter of 2001 at a record pace, opening the door for increased production. Consumer spending grew at a 5.4 percent rate, the fastest since the first quarter of 2000.
Even as production increases, inflation may stay in check because manufacturers are using less than three-fourths of their available capacity. The plant-use rate fell to 74.2 percent last month from 74.4 in December. January's reading is the lowest since April 1983, when industry used just 73.7 percent of its capacity.
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