By Jeannine Aversa
The Associated Press

WASHINGTON - Wholesale prices plunged by a record 1.9 percent in April as the end of the Iraq war removed pressures on energy costs, which posted their largest drop in almost 17 years. Operating capacity at big industry nose-dived to the lowest ebb since 1983.

The big drop in the Producer Price Index, which measures the prices of goods before they reach store shelves, marked an about-face from March when higher energy prices, stoked by the war, helped to catapult wholesale prices up by a hefty 1.5 percent, the Labor Department reported.

Thursday's report makes clear that inflation isn't a problem for the economy, but it might intensify fears about whether the United States is heading down a path of a destabilizing fall in prices.

The drop in the PPI in April was more than double the 0.7 percent decline that economists predicted.

Gasoline and home heating oil prices in April each fell by record amounts - good news for businesses and consumers, who have felt the strain of higher energy prices on their budgets and spent more cautiously in return.

Also Thursday:

• The Federal Reserve reported that production at the nation's factories, mines and utilities fell by 0.5 percent in April for the second month in a row, a fresh sign that manufacturing is the weakest link in the economy's ability to get back to full economic speed. Economists were forecasting a 0.4 percent decline.

Operating capacity sank to 74.4 percent in April, the lowest level since June 1983, as big industry throttled back production amid lackluster customer demand.

• Fewer U.S. workers filed new claims for unemployment benefits for the third straight week, a small dose of good news for the largely stagnant job market. The department, in that report, said new applications for jobless benefits fell by a seasonally adjusted 13,000 to 417,000 last week. That surprised analysts who were predicting unemployment claims to rise.