WHEN INDUSTRIAL production rises smartly, as it did last month, the administration and nearly everyone else hail that as a good and healthy sign. When the trade deficit continues to rise, as it did in October, the administration and nearly everyone else correctly regard it as a sign of serious trouble. But both of those numbers rose for the same reason: the American economy has been expanding rapidly in recent months. Manufacturing companies lifted production this autumn to meet consumers' demand -- but that same strong demand sucked record volumes of imports into the American market.

The central question for economic policy -- and the Reagan administration continues to duck it -- is whether the country can get the trade deficit down without similarly dropping the growth rate and going into a recession. This administration does not know how to keep the economy growing except by pushing up consumer demand with big federal deficits. Campaigning in 1980, Mr. Reagan and many other Republicans condemned previous presidents' reliance on Keynesian management of consumer demand to keep growth up. Too little American wealth was going into savings and investment, they charged, and far too much into current consumption.

There was a good deal to that charge. And since then, how have things been going under Mr. Reagan himself? Not only are the deficits bigger, but savings rates are drastically lower and business investment remains about where it was in the Carter years thanks only to the foreign money coming into the country. Throughout the Reagan years consumption has increased significantly faster than output. That's why there's a trade deficit. As long as the United States keeps consumer demand rising rapidly, the dollar will have to fall very far indeed to have any very prompt effect on the trade deficit.

The right way to attack the trade deficit is by raising exports. But American business is going to have trouble expanding fast enough both to meet growing consumer demand in this country and to step up its exports as well. For one thing, investment in this country isn't high enough to do both simultaneously.

These are painful subjects for the party in power, and not appealing for election-year discussion. For the next 11 months you can expect the White House to continue to cheer at all statistics indicating strong growth of consumption and to deplore all statistics reporting high trade deficits. There won't be much interest in drawing any connection between the two.