Economists may get a little grease under their finger nails Friday digging into the latest economic indicators.

Industrial production

and

capacity utilization

for December are due out, and both should provide clues about whether the economy is growing so fast that the Fed will boost interest rates.

Economists project that industrial production slipped to 0.8% from 0.9% in November, while capacity utilization reached 83.5%, up slightly from 83.3% in November.

Kenneth T. Mayland, chief economist at Cleveland-based

KeyCorp

, officially forecasts an 0.8% industrial production number too, but says it could actually come in higher. He's also looking for capacity utilization to reach 83.7%.

Either way, "the message is the same and this is that the economy finished strong in 1996," Mayland says. "We're at a pretty tight level of resource utilization, and it's only a matter of time before the inflation scare comes back."

Mayland believes this in part because he sees "firmer numbers, not softer numbers" as the year progresses. In addition, "I think there will be price pressures developing," he says. And the financial markets have yet to take that into consideration, he adds.

Taming some inflationary fretting, the

Philadelphia Federal Reserve Bank Business Index

showed strength in manufacturing but little pricing pressure. The index of general activity climbed to 11.3 from a revised negative 6.2. The new orders index jumped to 18.7 from a negative 2.9 in December. And prices fell to 2.1 from 14.4 in December. That was the lowest level in 10 months.

Meanwhile, initial unemployment claims recorded its biggest weekly drop in nearly six month, falling by 32,000 to 323,000 for the week ended Jan. 11. The four-week moving average for initial jobless claims dropped 6,750 to 348,750.

Friday's numbers:

Richmond Federal Reserve Bank

President Al Broaddus speaks to a business group in Richmond. In a speech Wednesday he said Fed policymakers shouldn't be complacent with a permanent annual inflation rate of 3%.

November

Trade Balance

(8:30 AM EST): Economists expect the deficit to grow to $9.5 billion from $8 billion in October.

December

Industrial Production

and

Capacity Utilization

(9:15 AM EST): Industrial production is expected to show a decline to 0.8% from 0.9% in November while capacity utilization is projected to have reached 83.5%, up slightly from 83.3% in November.

University of Michigan Consumer Sentiment Index

(10:00 AM EST): Look for an increase to 97.5 from 96.9 in December.

By Erle Norton

enorton@thestreet.com