Economic Data Pose Inflation Problems; Fed Faces Showdown on Easing Credit --- Industrial Output Plunged 1.7% as Producer Prices Rose 0.5% in November
WASHINGTON -- Last week's economic data provided a vexing picture of an economy in which industrial managers have slammed the brakes on production because of recession fears, but where inflation hasn't slowed as quickly as might be expected in a downturn.</br></br>That combination means trouble for policy makers who want to jump-start the economy with lower interest rates, but worry that lower rates could also stimulate inflation.</br></br>Industrial production in November plunged 1.7%, following decreases of 0.9% in October and 0.1% in September, the Federal Reserve Board reported. The November cutback was the biggest in a single month since production dropped 2% in January 1982.</br></br>A 21.5% drop in auto and truck production, along with declines in other areas related to car manufacturing, accounted for more than half the loss in the month. Businesses also shut down a big chunk of productive capacity; industry operated at 80.9% of capacity in November, down from 82.4% in October. The November rate was the lowest since May 1987.</br></br>In another report, the Labor Department said producer prices increased 0.5% in November, about twice what many economists had expected given recent statistics pointing to a clear economic downturn in October and November.