WASHINGTON -- U.S. industrial production surged again in November while consumer prices remained muted, according to government reports issued yesterday.
The latest figures reinforced the notion that the economy is continuing to move ahead at a rapid clip without much evidence of a pickup in inflation. "It's more of the same, more noninflationary growth, and the question is how long can we have noninflationary growth?" said David Berson, chief economist for the Federal National Mortgage Association.
According to the Federal Reserve Board, industrial output jumped 0.5% for the second straight month on widespread gains at auto assembly plants and other manufacturers of durable goods. Total manufacturing output advanced 0.8%, up from a 0.6% gain recorded in October.
A separate report from the Labor Department said its consumer price index last month increased a moderate 0.3%, partly because of higher energy prices. Excluding the volatile food and energy categories, prices were up a reassuring 0.2%, the same as in October and September.
The latest figures actually showed a slight deceleration in prices so far this year. Compared with a year earlier, the CPI was up only 2.6%, while prices excluding food and energy rose only 2.7%.
Many analysts believe the economy is growing at a 4% pace in the final three months of the year -- well above the 2.5% rate that Fed officials believe is needed to head off higher inflation. Accordingly, some say a move by Fed officials to raise short-term interest rates at the Dec. 20 meeting cannot be ruled out.
The bond market got conflicting predictions yesterday on that issue. Former Fed governor Wayne Angell, now chief economist for Bear Stearns & Co., said he expects members of the Federal Open Market Committee will boost rates 50 basis points to 6% when they meet later this month. But former Fed vice chairman Manley Johnson predicted the central bank will stand pat.
Those arguing for a Fed move say the economy continues to perform too robustly and that policymakers cannot afford to delay a credit tightening until their Jan. 31-Feb. 1 meeting.
Others say officials are concerned about unsettling financial markets at a time of uncertainty exacerbated by the Orange County bankruptcy. There is also an argument that Fed officials will want to wait to see how the economy responds after Jan. 1 to their earlier credit tightenings this year.
Despite the benign inflation figures for November, analysts remain convinced that price pressures are building underneath the surface and that some businesses will put in place price increases that stick next year. Many are predicting that inflation will increase between 3% and 4%.
"We're clearly in a zone where we are pressing the capacity of a downsized industrial sector, and it doesn't look as if the Federal Reserve's interest rate moves are quite done," said Thomas Synott, chief economist for U.S. Trust Co. He predicted the Fed will bump up short-term rates another 100 basis points to 6.5% next year.
In its industrial production report, the Fed said U.S. factories in November operated at 84.4% of capacity, up from 83.9% the month before. Analysts often consider 85% a threshold for triggering higher inflation in the industrial sector as bottlenecks develop that force companies to pay more for wages and materials.
According to the Fed, durable goods producers operated at 84.8% of capacity last month. Furniture, primary metals, industrial machinery, and electrical machinery all reported rates over 90%, and the rate for motor vehicles jumped to 87.2%.
However, a separate report from the Labor Department showed that workers continue to get slim increases in wages after adjustment for inflation. Real average weekly earnings in November were up only 2.6% compared to a year earlier.
Another report from the Commerce Department said rising imports -- boosted by strong consumer demand -- helped widen the U.S. trade deficit on a current account basis to $41.7 billion in the third quarter. The total was the highest since the closing three months of 1987. The current account measures trade in goods and services, investment flows, and unilateral government transfers to other countries.