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Strategies & Market Trends : ScottOnStocks.com-2001 -- Ignore unavailable to you. Want to Upgrade?

To: Smiling Bob who wrote (171)	2/16/2001 3:54:26 PM
From: Smiling Bob	Respond to of 231

Friday February 16, 2:58 pm Eastern Time Producer Prices Soar, Consumers Gloomy By Glenn Somerville WASHINGTON (Reuters) - A spike in U.S. wholesale prices during January startled financial markets on Friday before reports of skidding industrial output and frightened consumers revived hopes for more interest-rate cuts. The Producer Price Index that gauges prices paid at the farm and factory gate leapt 1.1 percent after a 0.2 percent increase in December, the Labor Department said, its biggest increase in more than a decade. Much of the monthly jump stemmed from costlier energy, especially natural gas, and it immediately fueled worry that the Federal Reserve might stop trimming interest rates for fear that inflation pressures were building. Stock prices tumbled sharply, partly out of concern that higher energy prices would be a further dampener on corporate profits, while bonds gained strongly as investors sought safer havens for their money. But the Fed itself offered a sign that further rate cuts might still be needed to prop up flagging growth, reporting that the nation's industrial output tumbled for a fourth straight month in January, dropping 0.3 percent after a 0.5 percent decrease in December. FACTORIES RUN SLUGGISHLY Businesses ran at just 80.2 percent of their maximum capacity last month, the most sluggish since a matching rate in August 1992. It further confirmed Fed Chairman Alan Greenspan's testimony before Congress last Tuesday that businesses were in a retrenchment that ``may take some time to run its course.'' One vital economic sector, the housing industry, showed a burst of vitality in January with a 5.3 percent climb in new housing starts to an annual rate of 1.651 million, the strongest pace in nine months, the Commerce Department said. But at mid-morning, a University of Michigan survey showed consumer confidence crumbling further in February to the lowest levels in more than seven years. Sources said the consumer sentiment index, issued only to paying customers, slipped to 87.8, its lowest level since November 1993, from a final January reading of 94.7. Greenspan has said that slowing growth could give consumers a chill and warned Congress last month that a complete collapse of confidence could mean recession: ``The critical issue we need to address is whether that degree of contraction is enough to breach the fabric of consumer confidence.'' Analysts said the reports, taken together, implied the U.S. central bank almost certainly remained ready to cut interest rates again to keep an evident economic downturn from potentially sliding into the first recession in a decade. ``At the end of the day, nothing has really changed here,'' said economist Richard Yamarone of Argus Research Corp. in New York. ``The Fed is clearly still in an easing mode and it has additional eases in the chamber of its gun.'' RATE CUTS SEEN The Fed cut interest rates sharply in January, with back-to-back half percentage point trims at the beginning and the end of the month. Yamarone said he was fully counting on at least another quarter-point reduction when Fed policymakers hold their next scheduled strategy session on March 20. The PPI report was worrying but not a conclusive sign that inflation was rearing its head, analysts said. Producer prices were strongly affected by rising energy costs, which climbed 3.8 percent in January after a 0.8 percent gain in December, the biggest monthly rise since a 6.1 percent gain last June. Prices for cigarettes were up and so were those for cars, especially surprising since auto dealers were promoting price rebates to stir sluggish sales. Economist Joel Naroff of Naroff Economic Advisors in Holland, Pa., noted that energy prices have recently eased and food prices are volatile. ``Unless the February PPI release supports today's data, it is best to wonder but not jump to the conclusion that the inflation genie is back out of the bottle,'' Naroff said. The decline in January industrial output was heavily related to cutbacks in production by automakers, many of whom are laying off employees and temporarily closing plants to clear out a glut of unsold cars on dealers' lots. Jerry Jasinowski, president of the National Association of Manufacturers, said that aside from automaking it appeared that many industries were successfully working off excess inventories so that growth could resume later in the year. The Fed report said that, excluding motor vehicles and parts, January industrial production was unchanged after being down 0.2 percent in December. ``The slump in industrial activity that began in October isn't over, but it's likely that we're into the seventh-inning stretch,'' Jasinowski said, using a baseball term to suggest the end of manufacturing weakness might be near. Email this story - Most-emailed articles - Most-viewed articles biz.yahoo.com