WASHINGTON — Consumer confidence slid to its lowest level in 16 years, factory output went flat and there were signs of a pick-up in inflation, according to data released Friday -- an ominous combination for an economy on the verge of recession.
Slowing growth coupled with sharply rising prices is particularly challenging for policymakers because the main tool used to stimulate the economy -- cutting interest rates -- tends to fuel inflation.
The more immediate concern is growth, or a lack of growth, in economic activity. Because spending by individual Americans accounts for two-thirds of that activity, economists are eager to learn how confident consumers are feeling, which may signal whether they are in a buying mood or are pulling in their horns.
In a clearly downbeat sign, the Reuters/University of Michigan index of consumer sentiment this month fell much more than expected to its lowest level since February 1992.
Meanwhile, the government's report on industrial production in January showed a weak 0.1% increase for the second consecutive month. And an index of manufacturing activity in New York state signaled contraction for the first time since May 2005, according to the Federal Reserve Bank of New York.
"We've started 2008 with very little momentum, if any," said Alan Gayle, chief investment strategist at Trusco Capital Management in Atlanta.
"There's a lot of talk right now about whether growth is slightly negative or slightly positive, but it's a distinction without a difference," Gayle said. "This economy is soft."
The confidence and industrial output data helped hold down the stock market Friday. The Dow Jones industrial average fell 28.77 points, or 0.2%, to 12,348.21. The Standard & Poor's 500 index edged up, while the Nasdaq composite index lost 0.5%.
Complicating the problem, U.S. import prices skyrocketed last month from December because of higher energy and food costs, and marked a record increase from a year earlier, the Labor Department said Friday. That, along with signs in the consumer survey that Americans are starting to worry about higher prices, is bad news for the Fed, which is trying to quash recession and a freeze-up of financial markets by slashing interest rates, the very thing that can send prices flying.
In congressional testimony Thursday, Fed Chairman Ben S. Bernanke said that inflation, though running above levels of a year ago, remained in check. But he acknowledged that if inflation or people's expectations about inflation picked up, that eventually could make it harder to trim interest rates.
