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Three Reports Add to Signs of Recovery

Producer prices rose 0.2% in February, roughly in line with the consensus estimate. Excluding food and energy, the PPI was flat, less than the 0.1% rise expected by the consensus. The PPI increase was the first since September, as prices were boosted by a drought-related jump of 1.0% in food prices.

Producer prices of finished goods are now down 2.6% from a year ago, while the core rate is up 0.5%. Intermediate prices were down 0.1%, because of energy; the core intermediate prices were flat. Crude prices fell 0.8% as energy skidded 6.5%, reversing the January rise. Crude goods prices are down 30.9% on the year.

The news confirms the lack of inflationary pressure in the economy, implying no immediate pressure for Fed tightening.

INDUSTRIAL PRODUCTION INCHES HIGHER. Industrial production rose 0.4% in February, well above the consensus estimate of a 0.2% increase. In addition, January was revised upward to a 0.2% gain from a 0.1% drop, providing the first back-to-back gains for production since September 2000. Although production is down 4.1% from a year ago, the turnaround suggests industry is beginning to recover.

Utility production was up 2.7%, as the weather was more normal than the warm January, while manufacturing was up 0.3%. Weak oil prices sent mining down 0.7%. Capacity utilization rose to 74.8 from 74.5 in January. Manufacturing strength was well-spread, despite drops in paper and home electronics.

The data confirm the NBER's view that the economy is coming out of recession, and suggest that January may be the official trough. The Fed will also see the release as a reason to believe more firmly in the recovery, although S&P does not expect any imminent tightening.

CONSUMER CONFIDENCE JUMPS. The University of Michigan's index of consumer sentiment jumped to 95.0 in early March from 90.7 in February, well above the 92.5 consensus. Consumer sentiment is at its highest level since December 2000. Both components rose sharply. The index of current conditions jumped to 99.3 from 96.2 in February, now at its highest level since August. The expectations index rose to 92.3 from 87.2, its highest level since November 2000.

The data should increase enthusiasm about consumer spending after the disappointing retail sales in February. The preliminary survey is not balanced demographically, and thus is less reliable than the full month report due out the end of March.

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