Economy Levels Off for a Soft Landing : Indicators: With March output down 0.3%, there is little chance the Fed will hike rates.

WASHINGTON — A flurry of new data--including the first drop in industrial production in six months--offers fresh evidence that the once-booming U.S. economy is slowing down and inflation is muted.

The Federal Reserve Board said Friday that industrial output fell in March by 0.3%, only the second decline in nearly two years and the first drop since a September dip related to an auto industry strike.

The central bank also revised figures for January and February to reflect that the cumulative gain in output for the two months was 0.3% less than previously estimated.

And another closely watched Federal Reserve index showed that the nation’s factories, mines and utilities were operating with more slack in March for the second straight month. It was the first back-to-back decline for the operating rate in nearly two years.

Even though the production decline was led by a sharp drop for utilities because of unusually mild weather, analysts said the signs of a broad-based slowdown are unmistakable.

“All of the pieces are falling into place to strengthen the case for a soft landing,” said economist Sung Won Sohn of Norwest Corp., a Minneapolis bank. “We have really a nice situation where an economic slowdown is occurring with limited inflation.”

There is practically no chance the Federal Reserve will raise interest rates again any time soon, he said, adding the next move could be a rate cut to stimulate growth.

Financial markets in New York, which have rallied on signs of slower growth, were closed for Good Friday and will have to wait until next week to react.

In another report that could lead to slower economic activity, the Commerce Department said business inventories rose 0.9% in February, the 11th straight gain, and jumped a revised 1.3% the month before.

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Capacity Utilization

Seasonally adjusted percent of total industrial capacity:

March 1995: 84.9%

Source: Federal Reserve Board

Industrial Production

Seasonally adjusted index, 1987=100

March 1995: 121.9

Source: Federal Reserve Board