MUNCIE, Ind. -- For the second consecutive month, the output of the nation's factories grew by a robust 0.9 percent in March, capping a week of reports that show building momentum in the overall U.S. economy, says an economic analyst at Ball State University.

"The unexpectedly high rate of growth, and the anticipation of more restrictive actions by the Federal Reserve as a consequence, seemed to have closed down the long running party on Wall Street," said Patrick Barkey, director of the Bureau of Business Research.

In a few short weeks, prices of the major industrial stocks have fallen ten percent, undoing the gains that had been produced since the beginning of the year, he said.

As was the case last summer, the actions of the Federal Reserve have been vindicated by the performance of the economy -- it is only the decision itself that is different. Nine months ago, the Federal Reserve opted to leave interest rates alone when it looked like inflation pressures were rising, and the economy responded by slowing down on its own, Barkey said.

"This time, it is the central bank's decision to raise short term interest rates that appears wise, as consumer spending, fueled by steady gains in payrolls, is starting to whip up more momentum in the economy than policy makers at the Fed are comfortable with," he said.

The 0.9 percent monthly increase in the manufacturing component of the Federal Reserve's Index of Industrial Production in March was almost entirely explained by durable goods industries. Leading the way were companies producing construction supplies, business equipment, and to a lesser extent, motor vehicles. Production increases in autos were confined mainly to light trucks with automobile output up only modestly.

Gains in durable goods industries' output come at a time when factories are already running harder. Indeed, over the entire first quarter of 1996, output of durable goods companies grew at a blistering 10.2 percent annual pace. The growth helped push utilization rates in these industries to 83.1 percent, a two-year high.

Barkey said a recent report from the Bureau of the Census on retail sales points to the reasons why manufacturers have decided to ramp up their production schedules.

The preliminary estimate for March sales by retailers recorded only a 0.2 percent monthly increase, but the bureau also released revised estimates of February sales that showed a whopping 1.5 percent gain over January. This helped put first quarter sales up a healthy 6.2 percent above the same quarter last year.

"Thus we begin another year with the economy accelerating, on the heels of a forecast by economists that growth would be slow," Barkey said. "Will events follow the pattern of previous years, with alternating periods of surging and sluggish growth? With the four to six month lead time before interest rate hikes impact the economy's growth rate, the Federal Reserve cannot afford to wait for an answer to that question. Look for the central bank to push rates up again at the next opportunity."