Inflation, worries of recession on the rise

By Martin Crutsinger
Associated Press

WASHINGTON — Severe winter weather and jitters about war took a further toll on the U.S. economy, sending wholesale energy prices soaring and triggering declines in both manufacturing output and consumer confidence.

The government reported yesterday that wholesale prices jumped by 1 percent in February, led by a 7.4 percent surge in energy costs. Output at the nation's manufacturing plants fell for the second month in three, although overall output at factories, mines and utilities managed a meager 0.1 percent gain.

Consumer sentiment, buffeted by rising gasoline prices, job layoffs and fears of retaliatory terror attacks should the United States invade Iraq, dipped in March to 75.0 from a February reading of 79.9, according to a preliminary report from the University of Michigan.

The latest onslaught of bad economic news, following news last week that 308,000 jobs were lost in February, heightened worries that the country could be tipped into another recession by rising anxiety over what might happen if the United States goes to war coupled with weak consumer spending.

"When consumer confidence numbers stay this low for a period of time, you have to face the reality that the mood has changed," said Robert Gay, chief research economist at Commerzbank in New York. He and other economists said the chances of the country sliding back into recession were increasing as long as uncertainty about what might happen in a war left businesses unwilling to commit to new hiring or expansion plans.

The Federal Reserve said the 0.1 percent drop in output at manufacturing plants reflected big cutbacks at auto factories in the face of two months of declining sales.

Overall, industrial output managed a tiny 0.1 percent gain as the manufacturing weakness was offset by gains of 1 percent in mining, which includes oil production, and 1.3 percent at utility companies, where demand surged because of the cold weather.

"This says loud and clear that the manufacturing recovery remains stalled," said Jerry Jasinowski, president of the National Association of Manufacturing, who urged Congress to pass quickly President Bush's new round of $726 billion in tax cuts.

Jasinowski said since December 2001 manufacturing production has edged up by just 1.6 percent, far below the 10.8 percent output gain manufacturing averaged during the first 14 months of the previous six recoveries.

Treasury Secretary John Snow, campaigning in Ohio for President Bush's tax cuts, tried to play down Thursday's setback when four centrist senators, including two Republicans, said they would not vote for a new round of tax cuts unless its price tag was cut by more than half to $350 billion.

"Both sides of the aisle recognize something needs to be done," Snow said. "The question is the content and size of the plan."

Many economists believe the worsening economy will prompt the Federal Reserve to cut rates again, as early as Tuesday.