Washington, May 15--Wholesale prices took a record plunge last month and the nation's manufacturing sector slumped, according to reports released on Thursday that showed an economy facing an uphill climb to full health.
The producer price index, which measures prices paid at the factory, farm and refinery gate, plummeted 1.9 percent in April, the biggest drop on records dating to 1947, the Labor Department said.
Much of decline was due to an 8.6 percent fall in energy prices, reflecting a big drop in oil prices from late-February highs as fears over a war-related supply disruption eased.
However, prices for cars, SUVs and other light trucks, and cigarettes also fell, dragging the so-called core PPI, which excludes volatile food and energy prices, down a sharp 0.9 percent -- its biggest plunge since August 1993.
In a separate report, the Federal Reserve said output at the U.S. manufacturing plants, mines and utilities slid 0.5 percent last month, its second consecutive drop. U.S. industry operated at only 74.4 percent of capacity, the lowest level in 20 years.
A third report showed manufacturing activity in the mid-Atlantic region contracted in May, suggesting the nation's factories are still ailing.
"The manufacturing sector is still in the dumps and is having problems getting out of the doldrums," said Sung Won Sohn, chief economist at Wells Fargo Bank in Minneapolis. "With weak consumer and business spending, manufacturers are not about to crank up production."
Stock markets largely shrugged off the downbeat news and were clinging to slim gains in early afternoon trade. Prices for most Treasury securities rose, pushing yields lower.
HOPE AMID GLOOM
While wholesale prices fell more than economists had expected, analysts cautioned against concluding deflation, a persistent drop in consumer prices, was about to set in. The Labor Department reports April consumer prices on Friday.
"The trend is still there to softer prices. The economy is shaking off the war-related paralysis from March and April, but the question is will growth be sustained or will it be just a return to the slow pre-war growth?," said Kevin Logan, senior economist at Dresdner Kleinwort Wasserstein in New York.
Many economists saw at least glimmers of hope for a faster recovery in data released on Thursday.
Factories in New York state ramped up activity in May and sales at retailers, manufacturers and wholesalers climbed in March at their fastest pace in nearly a year.
In addition, first-time filings for jobless aid fell by 13,000 last week to a seasonally adjusted 417,000, their third consecutive weekly drop, the Labor Department said.
However, while claims declined, they remained above the 400,000 level for the 13th week in a row. Economists say claims above 400,000 indicate a stagnant labor market.
In another sign of weakness, the number of jobless workers who remained on the benefit rolls in the May 3 week, the latest week for which data are available, rose a sharp 120,000 to 3.77 million. That marked its highest level since mid-November 2001, when the U.S. economy was reeling from the Sept. 11 attacks.
"The economy is still moving ahead but not very fast and it does not seem to have accelerated much from the 1 and half percent rate that we've seen in the past six months," said Douglas Lee, president of Economics from Washington.
BANKRUPTCIES MOUNT
The recent pace of growth has fallen short of what is needed to create jobs, pushing the unemployment rate to a four-month high of 6 percent in April.
Mounting job losses have led to a rise in bankruptcies. The Administrative Office of the U.S. Courts said on Thursday a surge in personal bankruptcies pushed overall bankruptcy filings to a new high in the 12 months ending in March.
Nevertheless, analysts say historically low interest rates are helping consumers keep up with debt payments.
