Bright Sun, Cold Wind

The economic news last week resembled an early spring weather report: mostly bright sunshine, but with a chilly wind to serve as an unwelcome reminder of the bitter winter. The wind was inflation, which leaped to an annual rate of 12.7% in February as measured by the Consumer Price Index, even worse than the 10% pace of January. By far the biggest rise came in food prices, largely reflecting fruit and vegetable shortages caused by January's crop-killing cold. Though most economists expect the rate to fall in coming months--they think the underlying pace is 5% to 6%--the February inflation rate was the worst in 2 1/2 years.

Otherwise, the week's numbers portrayed an economy roaring out of its winter doldrums. Industrial production in February jumped a full 1%, more than wiping out a January drop. About the only component that fell was auto output, and that should turn around quickly: new car sales in the first ten days of March rose more than 19% from a year earlier, to a record daily selling rate for the period. Housing starts in February soared 29%, the biggest one-month jump ever, to an annual rate of 1,791,000. Personal income in February rose at an annual rate of $17.1 billion, more than ten times the anemic January increase; income from wages and salaries climbed at an annual rate of $12.9 billion, the largest increase for any one month. One reason: working hours lengthened as factories that had been shut down in January by the cold and fuel shortages resumed full operation. Earnings rose even faster than prices in February, so the non-farm worker's "real" income--adjusted for inflation and higher taxes--climbed one-half of 1%.

The numbers, says Arthur Okun, a member of TIME'S Board of Economists, mean "the freeze thawed out quicker than we thought." He adds that the notion that the winter cold would do lasting damage to the economy "was the biggest fizzle since Kohoutek's comet." Just as the January figures were unduly depressed, current statistics might be distorted by the bounce back from the January slump. Nonetheless, the outlook seems bright--if inflation can be wrestled down.

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