Producer prices for finished goods fell 0.1 percent last month, the first decline in six years, the Commerce Department reported yesterday. The White House welcomed the news but some economists said the drop was stark evidence of the severity of the recession.
Prices of intermediate goods and crude materials fell 0.3 percent and 0.6 percent respectively. It was the first time since February, 1975, in the depths of the worst recession since World War II, that all the indexes went down simultaneously, the department said.
Car, truck and gasoline prices were among those falling sharply on a seasonally adjusted basis. Light truck prices tumbled a huge 7.9 percent as manufacturers began offering rebates on both cars and trucks.
White House spokesman Larry Speakes called the report "good news, indeed. We find the February results satisfying and a clear indication that inflation is coming down."
"It's another indication of the substantial progress we are making in reducing inflation," said Murray L. Weidenbaum, chairman of the president's Council of Economic Advisers. But Weidenbaum gave most of the credit for the lower inflation rate to the Federal Reserve and its tight money policies.
A number of private economists, who also welcomed the slowing of inflation and agreed the Fed had a major hand in bringing it about, noted that it had happened only as a result of the recession.
"The decline is cause for concern about how weak the economy really is," said economist Allen Sinai at Data Resources Inc., an economic consulting firm. "For the inflation index to drop in this modern environment takes a very weak economy. There is so much slack and recession in the economy that the downward pressure on prices has to continue for three to six months," he added.
At the National Association of Manufacturers, chief economist Jerry Jasinowski said the decline is "obviously, in general, good news. It reflects a favorable trend in reducing inflation that ought to lead to further reductions in interest rates."
However, Jasinowski also cautioned, "I think there are problems with a rapid decline in prices. People are carrying a lot of debt, and refinancing when prices are falling and interest rates are high is difficult. There are price-cost squeezes going on."
Meanwhile, the Federal Reserve announced that the nation's money supply rose $3.4 billion to a seasonally adjusted level of $448.3 billion in the week ended March 3. The increase more than wiped out a $3 billion decline the previous week and indicates the Fed will have to keep a relatively tight rein on the growth of money to keep it within the targets set for this year. That restraint could keep interest rates from falling very far despite the recession, analysts said.
The stock market had another bad day, with the Dow Jones industrials index dropping 8.19 points to close at 797.37. This week was the first time in nearly two years that the index closed below 800.
At the moment, the impact of the recession, tight credit conditions, and uncertainty about the future course of the economy are overwhelming the good news on inflation, so far as financial markets are concerned.
With the small February decline, the producer price index for finished goods is up only 5.4 percent in the last 12 months, exactly half the increase in the year ended February, 1981. Intermediate goods prices are up 4.4 percent, while crude materials prices are down 4.5 percent.
Last month prices for crude materials other than for food and energy products fell 5.1 percent. These prices are particularly sensitive to the state of the economy and the large decline, which was greater than in either of the two previous months, strongly indicates the recession is still deepening.
Price moderation was broadly spread throughout the finished goods category, the department said. Prices for consumer foods rose 0.5 percent, compared to a 1.1 percent jump in January. Prices for consumer goods other than foods fell 0.3 percent.
Gasoline prices dropped 2.7 percent following a 1.1 percent decline the month before. Passenger car prices fell 1.3 percent.
Separately, the Federal Reserve said that consumer installment debt expanded a seasonally adjusted $443 million in January following a revised $33 million decline in December. Total consumer installment debt stood at $330.14 billion at the end of January, up 6.2 percent from a year earlier, the Fed said.