Economic Preview: Few Signs of Slowing
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American companies and consumers paid more for gasoline, natural gas, and other fuels in October, while the costs of other goods and services decelerated, economists forecast a pair of reports on inflation to show this week.
A 0.6% increase in prices paid to producers, the biggest since May, is expected after a 0.1% rise, according to the median forecast in a Bloomberg News survey before the Labor Department’s November 16 report.
Prices paid by consumers probably increased 0.4%, an acceleration from September, the government may report the following day.
Excluding energy and food, both measures barely rose, estimates show.
Higher energy costs have been little more than a speed bump for the economy, the Federal Reserve signaled after raising interest rates last week for the fourth time this year. Separate figures this week on manufacturing and home construction are forecast to show few signs of slowing after reports of stronger retail sales, confidence, and hiring.
“The resilience in recent activity measures in our judgment should be an encouraging sign that prospects for full-blown economic expansion in the coming year may be brightening,” said the chief American economist at Citigroup Global Markets in New York, Robert DiClemente, in a report.
Crude oil prices rose to a record in October, pushing the cost of gasoline at the pump back above $2 a gallon, according to Energy Department statistics. Fed policy-makers raised their benchmark overnight bank lending rate a quarter point to 2% on November 10 and said in a statement after that “output appears to be growing at a moderate pace despite the rise in energy prices, and labor market conditions have improved.”
The economy will grow at a 3.5% annual rate in the current quarter after 3.7% pace in the prior three months, according to the median forecast in a Bloomberg survey of economists conducted from October 29 through November 8.
The Federal Reserve Bank of New York is forecast to report tomorrow that manufacturing in the state expanded at a faster pace this month. The Empire State factory index probably rose to 20.7 during the month after 17.43 in October, according to a separate Bloomberg survey. Readings above zero indicate growth and the survey has shown expansion since April 2003.
“We saw good demand last quarter,” said the chief executive officer at JDS Uniphase Corp., Kevin Kennedy, in a November 12 interview from Mountain View, Calif. JDS Uniphase, the world’s largest maker of parts for fiber-optic networks, makes optical components for high-definition televisions. “This is a wave that will continue for the next several years.”
The Fed on November 17 is forecast to report industrial production in October increased 0.4% after a 0.1% rise, according to the median estimate. September production was restrained by hurricanes, which shut petroleum refining in the Gulf of Mexico. Mining production probably rebounded last month. The Philadelphia Fed will probably report a day later that its measure of regional manufacturing expanded less in November than a month earlier. A reading of 23.2 is forecast after October’s 28.5.
Like the New York state survey, readings above zero signal growth.
It’s “at a level that suggests manufacturing activity in the mid-Atlantic region still grew solidly,” said the chief economist at Insight Economics in Danville, Calif., Steven Wood. “The pace of growth is more subdued than it was late last year or during the first half of this year. Demand growth is no longer robust, merely strong.”
Fed policy makers said they raised interest rates last week in part because “monetary policy remains accommodative.”
While consumers and businesses are paying more for fuel, “inflation and longer-term inflation expectations remain well contained,” the central bankers said in their statement.
The Labor Department’s November 16 report will probably show prices paid to factories, farmers, and other producers were tame in October when energy and foods are excluded.
A 0.1% rise in the so-called core rate is forecast for the month, compared with a 0.3% increase a month earlier.
Prices paid by consumers for goods and services other than energy and food probably increased 0.1% in October after a 0.3% rise, according to the median estimate.
The Commerce Department will probably report on November 17 that housing starts rebounded in October after weather limited building a month earlier, according to a Bloomberg survey. New construction is forecast to rise to 1.96 million at an annual rate after falling to a 1.898 million pace in September.