US economy warms up for the spring
Saturday 16 March 1996
The American economy showed further signs of awakening from its winter hibernation with a surge in industrial output in February and improved consumer confidence.
Even though separate figures showed that inflation remained very subdued last month, Treasury bonds and Wall Street fell in reaction. The new evidence of faster growth dashed any remaining hopes that the Federal Reserve would soon cut interest rates.
"We are living in the best of all possible worlds and worrying about it a lot," said Russell Sheldon, an economist at Mellon Bank in Pittsburgh.
Last month's rise in factory output was the biggest for nine years, partly due to a rebound from January's blizzard-related decline. Manufacturing production increased by 1.4 per cent after a 0.3 per cent decline in January. Total industrial output, which also includes mining and utilities, was 1.2 per cent higher in February, while the previous month's drop was revised from 0.6 to 0.4 per cent.
Taking the two months together, most of the improvement was concentrated in business equipment and durable goods, including computers, home appliances and cars and trucks.
There was also a recovery in aircraft production following the end of a long strike at Boeing. The end of the strike accounts for about a third of the increase in output so far this year.
The strike, the weather, and the fact that components of yesterday's production measure were calculated using last week's surprisingly strong jobs figures made some economists cautious about leaping to conclusions. "The economy could be stronger than we thought, but it is too soon to get excited about it," said Suzanne Rizzo at HSBC Markets in New York.
But others were willing to say growth was picking up. James O'Sullivan at JP Morgan said: "The message is that the economy is bouncing back. The figures exaggerate it but the point is right." This interpretation was lent weight by an increase in one of the main consumer confidence indicators, the University of Michigan sentiment index. It climbed from 88.5 in February to 95.7 in March.
Further benign inflation figures did nothing to lift spirits in the financial markets. Consumer prices rose 0.2 per cent in February, leaving the annual inflation rate unchanged at 2.7 per cent. The "core" inflation rate, excluding food and energy, has been flat at around 3 per cent for the past three years.
Comment, page 23
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