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During periods of “low visibility,” confusion reigns: for every indication of one trend, there seems to be a countertrend. The key is to glean from the collective wisdom of reliable leading indicators a clear signal that the economy is headed for a turn.

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April Data Underscore Fears


Core producer prices in April fell 0.9%, the most in nearly a decade, as industrial production shrank 0.5% for the second straight month, two separate reports showed Thursday.

The data reinforced the threat of too little inflation highlighted by the Federal Reserve and added to the picture of an economy showing little momentum immediately after the war in Iraq.

But more current snapshots of the economy are providing more hopeful, if unconvincing, signs.

Markets React

Investors shook off the fall in wholesale prices and weak April factory data, as the Nasdaq rose 1% and the S&P 500 added 0.8%. Treasuries were near unchanged.

One big reason for falling goods prices is excess capacity. Industrial production in April fell 0.4% from a year ago, as industry used just 74.4% of capacity, lowest since June 1983, the Federal Reserve said.

The weakness was widespread as output of consumer durables fell 0.7%, and nondurables 0.3%. Auto production fell 2%, business equipment 0.5% and materials 0.5%. The exception was high-tech equipment production, which rose 1% from March and 9.3% from a year ago.

Overcapacity extends beyond factories to financial services, airlines and other areas, noted Lakshman Achuthan, managing director of the Economic Cycle Research Institute.

While company profits are improving and there are even signs of a fledgling recovery in business confidence, Achuthan still expects business investment to remain weak.

"As long as capacity is not constrained, there's really no need to invest in plants and the ability to produce," he said.

It could take another year to soak up the excess capacity, he said. So while some indicators now point to a postwar strengthening, he said, the recovery may only get back to its subpar, prewar level.