But heavy industry - notoriously weak in the past few months - took another hit. Industrial production fell for the fifth straight month in February, and the portion of industrial capacity in use sank to a nine-year low.

Meanwhile, the Labor Department reported that wholesale prices rose modestly in February, as lower costs for cars and trucks helped to blunt higher prices for natural gas and other energy products.

Despite a shaky stock market, it appears that consumers haven't lost hope that the economy will right itself. The University of Michigan's midmonth consumer-sentiment index climbed to 91.8 in March from 90.6 at the end of February, according to individuals who have seen the report, which is available only to subscribers.

The current-conditions index slipped to 104.1 from 105.8 points, these individuals said, but the expectations index climbed to 84 from 80.8. The Labor Department, meanwhile, report that its producer-price index rose 0.1% in February. The increase followed a huge 1.1% jump in January, the largest in 10 years. The latest increase matched estimates from economists surveyed by Thomson Global Markets. Prices for goods other than food and energy products - which often swing widely from month to month - fell 0.3% in February, marking the biggest drop since August 1993.

In January, this so-called core figure jumped 0.7%. Automobile prices registered the biggest decline in three-and-a-half years, the government said. Prices of passenger cars fell 1.5%. Computer prices fell as well, dropping 1.1% after a 5.4% decline in January. Tobacco prices were unchanged in February after increasing 5.6% in January. Energy prices, which account for nearly 16% of the overall index, climbed at a slower rate than in January. Prices for residential electric power rose 1%, and prices of residential natural gas rose 3.5%. gasoline prices fell 0.8% and heating-oil prices dropped 1.6%.

The government said the growth of wholesale food prices also moderated in February, rising 0.6% after increasing 0.8% in January.

Industrial production fell a larger-than-expected 0.6% in February and capacity utilization clocked in at 79.4%, the lowest figure since February 1992, the Federal Reserve reported.

Both figures were weaker than expected. Economists surveyed by Thomson Global Markets had anticipated that industrial production would pull back 0.4%. and capacity utilization would drop to 79.8%. The data showed the economy has not yet taken its foot off the brakes, though more dire circumstances have yet to unfold. "While there's a lot of concern about manufacturing, the steepness of the decline is not nearly as significant as we observed in the recession of the early 1990s," said Tim O'Neill, an economist with the Bank of Montreal.

Manufacturing fell 0.4%, while manufacturing capacity declined to 78.1% from 78.7%. Technology production increased by 0.8%, following January's 1% rise.

Excluding high-tech industries, overall production fell 0.7% after a 0.8% decline the month earlier.

Utilities reduced capacity to 90.4% from 92.8%. Utilities production fell 2.3% after a 3.3% drop, unwinding most of December's 6.4% gain. The tame inflation data and the anaemic industrial-production report could encourage the Fed to cut rates sharply when it meets Tuesday. The Central bank slashed interest rates twice in January by a half-point each time in an effort to prevent the weakening economy from slipping into a recession.

One of the reasons Fed policy-makers cited for being able to act so aggressively was that inflation - outside of a burst in energy prices - had remained in check.

Some economists said on Friday, that the odds are growing that the Fed will cut rates by three-quarters of a percentage point next week.

So far, the only part of the economy to show any resilience has been the housing sector, given encouragement by low interest rates. The industry so some weakness in February but remained strong on a historical basis. Housing starts slipped 0.4% in February to a seasonally-adjusted annual rate of 1.647 million units, the Commerce Department reported.

Economists had expected housing starts to fall to an annual rate of 1.60 million units. In January builders broke ground on a revised 1.653 million homes, a 4.8% increase from the month before. January starts were previously reported as rising by 5.3% to a 1.651 million rate. Single-family home construction, which accounts for more than two-thirds of all residential construction, decreased 2.4% in February. Starts on apartment buildings, or structures with two to four units, plummeted 43.9% while starts on structures with five or more units rose 16.6%. Friday's data did carry warning signs of a housing slowdown, however. Building permits, an indication of the pace of future home construction, fell 3.1% to a pace of 1.67 million units after surging by 14.4% in January. Despite the decline, that was significantly higher than the rate of 1.58 million units expected by economists.

(The Wall Street Journal)