- The Washington Times - Tuesday, May 17, 2005

ASSOCIATED PRESS

Wholesale prices are climbing, industrial production is faltering, and housing construction is rebounding, offering mixed signals about the economy.

The latest economic reports, released yesterday, depicted “an OK economy that is moving forward. It’s not uniformly strong, but it is still sturdy,” said Mark Zandi, chief economist at Economy.com.

A Labor Department report showed that the Producer Price Index, which measures the costs of goods before they reach store shelves, increased 0.6 percent in April, reflecting more-expensive energy, cars and cigarettes. The increase in wholesale prices came on top of an even larger, 0.7 percent advance in March.

The latest price figures bolstered economists’ thoughts that Federal Reserve Chairman Alan Greenspan and his colleagues will continue to push up short-term interest rates for much of this year to counter inflation.

Excluding energy and food prices, which can swing widely from month to month, core wholesale prices increased by 0.3 percent in April. That was up from a tiny 0.1 percent advance in March and represented the largest increase since January.

“Inflation is accelerating. It is not doing so rapidly, but the direction is clear,” said Joel Naroff, president of Naroff Economic Advisors.

In another report, the Federal Reserve said industrial production in the nation’s factories, mines and utilities declined 0.2 percent in April, after nudging up 0.1 percent in March. April’s decline was the largest since September.

Production at factories in April was flat, especially restrained by cutbacks in automobile production. Economists blamed the manufacturing weakness on rising prices for energy and other goods hurting demand for cars and other items, and on companies trying to work off excess supplies.

“Manufacturers are pulling back on the production levers amid rising material prices and slumping orders,” said Richard Yamarone, economist at Argus Research Corp.

Production at mines also was flat in April, and output at utilities dropped 2.3 percent.

Housing construction, meanwhile, jumped 11 percent in April, compared with a 17.6 percent drop in March, the Commerce Department said. The advance in April increased the total number of housing units builders broke ground on to a brisk 2.038 million, on an annualized basis.

“The fundamentals for housing are good,” said David Seiders, chief economist at the National Association of Home Builders.

The latest snapshot of inflation, however, surprised economists. Before the report was released, they were forecasting a 0.4 percent rise in overall wholesale prices and a 0.2 percent increase in “core” inflation.

Wanting to make sure inflation doesn’t become a problem, the Federal Reserve has boosted short-term interest rates eight times since last June.

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