The economic recovery took a major step forward last month as industrial production surged upward by 2.1 percent, the largest monthly increase in nearly eight years, the Federal Reserve Board reported yesterday.
The broad-based rise in the output of the nation's factories, mines and utilities was about twice as large as most forecasters had been expecting. It followed an upward revised 1.2 percent increase in March and left the overall production index 6 percent higher than it was at its recession low last November.
Separately, the Labor Department said that in April prices of finished goods fell 0.1 percent for the second month in a row, largely because of a drop in energy prices.
However, most energy price changes are recorded in the index with a one-month lag, so that the 2.8 percent decline shown for April actually occurred in March. Since March, energy prices, particularly for gasoline, have been rising, not falling, analysts said.
Other finished goods prices rose a modest 0.3 percent. Consumer foods jumped 1.2 percent, the largest increase in a year, but prices for new cars, apparel, and some other items fell.
At the White House, Martin S. Feldstein, chairman of the Council of Economic Advisers, called the industrial production figures "very good news. . . . That's further evidence that the recovery is on course and, indeed, is shifting into higher gear."
Feldstein said the latest report on prices indicates that "inflation has been brought under control." He cautioned, however, that "we certainly don't expect to have a zero inflation rate continuing for the entire year."
Economists were particularly encouraged by the fact that the production increases last month were spread virtually throughout the economy. Mining was about the only sector to report a continued drop in output, and that was the result of added cutbacks in oil and gas drilling activity.
"This confirms that the rhythm of the recovery is established," said economist Alan Greenspan of Townsend-Greenspan & Co., who also echoed Feldstein's comment on inflation. "The extraordinary price calm is over."
On the other hand, Richard Rahn, chief economist for the U.S. Chamber of Commerce, was positively euphoric as he assessed the economic outlook: "We appear to be on the brink of having both worlds: a period of no inflation coupled with economic growth. . . . Based on the April data, second-quarter growth of the gross national product will be at least double the inflation-adjusted 3.1 percent rate of the first quarter."
Other economists were more restrained, suggesting the rate of increase in real GNP this quarter would more likely be between 4 percent and 5 percent.
The biggest question for the short term is the extent to which the higher levels of production will be matched by higher consumer spending and business investment.
Business inventories probably began to rise in April for the first time in months as a result of the production surge. Retail sales were up a healthy 1.6 percent last month, but if inventories are growing, future production gains will soon come to depend largely on the pace of sales.
Ford Motor Co., citing the possibility of a "real breakout" in auto sales, said it is planning to increase its own output in the third quarter of this year to a level 50 percent higher than in the same quarter last year.
The biggest industrial production gains reported last month came in durable consumer goods other than autos, the Federal Reserve said. Production of appliances, air conditioners and television sets rose a huge 11.2 percent during the month.
Business equipment production rose 1.8 percent in April, the second monthly increase in a row. The output of business equipment is still 11 percent lower than it was a year ago, the only major product category below its year-earlier level. Mining output is 15.4 percent lower than a year ago and output of utilities is down 2.2 percent.
Production of various intermediate products, including construction supplies, and production of materials all increased strongly. That indicates that the output of finished products is likely to continue to rise in coming months.
In its price report, the Commerce Department said that intermediate materials prices went down 0.2 percent in April, again in substantial part because of energy price declines reported with a lag.
Prices for crude goods, on the other hand, went up 1.4 percent, the largest increase in a year, as a result of a 3 percent jump in prices for crude foodstuffs and feedstuffs.