Producer Prices Decline in October
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Prices paid to American producers matched the biggest monthly drop on record and retail sales fell, reflecting slower economic growth and reduced inflationary pressures that may let the Federal Reserve cut interest rates.
The 1.6% decrease in prices paid to factories, farmers, and other producers last month followed a 1.3% decline in September, the Labor Department reported today. Sales dropped 0.2% and were revised lower for the prior month, the Commerce Department reported.
Bonds jumped as traders speculated the sales report may signal weakening consumer spending, which has kept the economy growing in the face of the housing slump. They will be scouring minutes of the Fed’s last meeting, which will be released tomorrow, and consumer price figures due the next day for confirmation that inflation is subsiding.
“The reports increase the likelihood that the Fed’s next move will be an easing,” the senior economist at UBS Securities LLC in Stamford, Connecticut, James O’Sullivan, said. “The big picture is overall growth has slowed and there is no sign of an acceleration in consumer spending to change that.”
A separate Commerce Department report showed inventories at American companies rose in September as sales posted the biggest decline in more than a decade. The value of unsold goods increased 0.4% following a 0.6% gain in August. Sales were down 2%, the biggest drop since January 1996.
Energy costs fell 5% and prices of light trucks dropped a record 9.7%, providing cost relief for companies that may filter through to finished-goods prices. Slower-than-expected economic growth has prompted economists to lower their forecasts for American inflation from three months ago, according to a Fed Bank of Philadelphia survey.
Lehman Brothers Holdings Inc. reduced its forecast for fourth-quarter economic growth following yesterday’s reports, the senior economist at the firm in New York, Drew Matus, said. Lehman expects the economy to expand at an annual rate of 2.8%, down from its previous 3.2% projection.
An expanding job market and falling gasoline prices have helped sustain consumer spending in the face of a year-long housing downturn that’s hurting retailers such as Home Depot Inc. Home Depot’s third quarter earnings, released today, missed analysts’ estimates and the company cut its earnings forecast.
