U.S. Industry Picks Up Speed

Big industry production rose by a strong 0.7 percent in February, an encouraging sign that the nation's manufacturers may be getting a stronger grip on their own recovery.

The increase in output at the nation's factories, mines and utilities came after a 0.8 percent jump in activity in January, the Federal Reserve reported Monday.

Last month's industrial production performance was even better than the 0.4 percent increase that some economists were forecasting. Gains were widespread in February, with production rising for automotive products, home electronics, business equipment, machinery, food products and chemicals.

That's especially good news for manufacturing, which was hardest hit by the 2001 recession and has had an uneven journey to get back on firm footing.

The latest snapshot of industrial activity also boded well for healthy economic growth in the first three months of this year. Analysts believe the economy grew at an annual rate of more than 4.5 percent in the current January-to-March quarter, up from a 4.1 percent pace in the fourth quarter of 2003.

The Federal Reserve's report also showed that production at factories - the biggest slice of industrial output tracked by the Fed - went up by 1 percent in February - a big pickup from January's 0.2 percent increase and the best performance since November.

Output at mines nudged up by 0.1 percent in February, following a 0.4 percent increase the month before. At gas and electric utilities, however, production fell by 0.7 percent as temperatures returned to more seasonal norms, the Fed said. Unusually cold weather in January increased demand for gas and electricity and had pushed output at utilities up by 5.3 percent.

The operating capacity at factories, mines and utilities rose to 76.6 percent in February, up from 76.1 percent in January — meaning many plants are still operating below capacity.

Against that backdrop, the Federal Reserve is widely expected to hold short-term interest rates at a 45-year low of 1 percent when it meets on Tuesday, economists said. By keeping rates very low, consumers and businesses might be motivated to spend and invest more, forces that would boost economic activity.

Thus far in the nation's economic recovery, healthy economic growth has yet to translate into meaningful job growth - a sore spot for President Bush as he seeks re-election.

The economy has lost 2.2 million jobs since Mr. Bush took office in January 2001, a point that presumptive Democratic presidential nominee Sen. John Kerry has seized upon and wants voters to remember when they go to the polls in the fall.

The heaviest job losses have come in the manufacturing sector, which has had to cope not only with economic troubles both at home and abroad but also a flood of imports flowing into the United States. The migration of jobs, especially those in manufacturing, to other countries has shaped up to be a hot-button issue in the campaign.

With job growth so slow in the United States, some economists believe the odds are growing that the Fed will hold short-term rates steady throughout this year and that the first rate increase wouldn't come until 2005. But others still believe the Fed could nudge up rates later this year.
By Jeannine Aversa