Prices Fall .04% as Economy Strengthens

WASHINGTON — The dream team of growth and no inflation made a repeat appearance in February as U.S. industrial production rebounded and producer prices fell for the second month in a row. Consumer confidence also rose this month to a more than 30-year high.

U.S. stock and bond prices rose on the news, with the Dow Jones industrial average advancing 56 points.

“It’s nirvana,” said Brian Wesbury, chief economist at Griffin, Kubik, Stephens & Thompson Inc. in Chicago. “Obviously the economy is going great.”

The output of factories, mines and utilities rose 0.5% last month, reversing a 0.1% decline in January, as demand rose for motor vehicles and appliances, Federal Reserve Board figures showed.

Meanwhile, the prices paid to U.S. factories, farmers and other producers unexpectedly fell 0.4% last month after declining 0.3% a month earlier, the Labor Department said. The decline in the producer price index was a bigger drop than economists had forecast, and the core rate excluding volatile food and energy prices fell 0.1%, instead of rising 0.1% as expected.

While Friday’s numbers don’t suggest an immediate need for Federal Reserve policymakers to raise the overnight bank lending rate to cool the economy, analysts said continued strong growth may force the central bankers to act--especially if consumers remain in a buying mood.

That’s a good bet, judging by this month’s rise in the University of Michigan’s consumer confidence index to 101.9--the highest since November 1965--from 99.7 in February.

“A preemptive move might be required,” Wesbury said. “Still, if the Fed is to move, it would be one of the shortest hikes and smallest hikes they’ve done--50 basis points at most.”

A separate report Friday from the Commerce Department showed that business inventories rose only 0.1% in January while sales increased 1.2%. That suggests businesses will be increasing orders to restock their shelves.

The economy’s good news gave only a little comfort to bond investors. The yield on the benchmark 30-year Treasury bond fell to 6.94% from Thursday’s 6.96%.

The report on industrial production showed that production of autos and trucks increased in February. Consumer goods output was unchanged, energy output fell and auto factories boosted output in the first quarter.

Even as the economy continues to expand at a healthy clip, a second inflation report for February--the consumer price index--is expected to reaffirm next week that inflation remains subdued. For the Fed, if next week’s CPI is as benign as Friday’s report on producer prices, it may defer raising rates until its May meeting.