Growth in US steams ahead

American factories last month operated at their busiest rate in more than 15 years. Along with a jump in prices charged at the factory gate, the output figures sent US financial markets tumbling, writes Diane Coyle.

Contradicting recent signs that the pace of growth was slowing, industrial output rose by 0.5 per cent in February, to a level 6.1 per cent higher than a year earlier. The rate of capacity usage rose to 85.7 per cent, although in manufacturing it was flat at 85.1 per cent.

Prices charged by producers rose 0.3 per cent in February, and 1.7 per cent in the latest 12 months. There was a 0.4 per cent rise in energy prices.

There were bigger increases further back in the inflation pipeline. Intermediate goods prices increased 0.9 per cent, while the prices paid by industry for materials and energy jumped 1.5 per cent, the biggest rise since December 1993.

Analysts disagreed about the significance of the figures and the implications for interest rates - even though the Federal Reserve's latest report on the economy said the expansion was slowing and there was no evidence of rising inflation.

Mark Grant, at Prudential Securities, said leading indicators such as retail sales showed the economy to be slowing, and the Fed would hold off raising interest rates. In the other camp, Michelle Laughlin, at Sanwa Securities, said: ``The economy is not dead in the water and not as weak as some people think. These numbers will keep the Fed on alert.'' Its next policy meeting is due on 28 March.

This was the interpretation the financial markets opted for yesterday. Treasury bonds fell and the Dow Jones average slipped 16 points by mid- morning, recovering to 4,038 at the close. The dollar weakened against the mark and yen.