Output Showing Signs of Upswing
The economy chugged ahead on the comeback trail with production by U.S. industry posting the biggest gain in nearly two years. But inflation crept higher, reflecting a worrisome spurt in oil prices, a potential pothole for the recovery.
The Federal Reserve reported Tuesday that output at the nation’s factories, mines and utilities jumped 0.7% in March, after a solid 0.3% gain in February--a sign that the turnaround in the manufacturing sector is gaining momentum. It marked the third straight monthly increase.
That’s good news for the national economy and for America’s manufacturers, which saw hundreds of thousands of jobs evaporate during the recession.
Though the budding economic revival isn’t causing a run-up in consumer prices, soaring oil costs are a concern. A dramatic increase could slow or derail the recovery.
“Oil prices. That’s the great wild card,” said David Seiders, chief economist for the National Assn. of Home Builders.
The Labor Department’s consumer price index, a closely watched inflation gauge, rose 0.3% in March, following a 0.2% advance. Virtually all of the pickup came from energy prices, which shot up 3.8%, the biggest increase in 10 months.
Tensions in the Middle East were a key force behind the increase. Oil prices retreated last week, only to flare again this week, stoked by uncertainties in Venezuela, the world’s fourth-largest oil exporter.
“In general, higher oil prices are a bad thing for the economy. They represent a very real cost to the U.S. that feeds through the whole economy,” said Bill Cheney, chief economist at John Hancock.
Out-of-control energy prices would cause consumers to lose confidence and retrench, snuff out a manufacturing comeback and send corporate profits tumbling.
Gasoline prices went up 8% in March, the largest advance in six months, reflecting higher oil costs and stronger demand. Fuel oil prices rose 2.2%, the biggest increase since December 2000, and natural gas prices increased 0.8%.
Food prices rose 0.2% for the second month in a row.
But excluding volatile energy and food prices, the “core” rate of inflation moderated, rising just 0.1% last month, down from a 0.3% increase. That suggested most other prices were remaining well-controlled.
Prices for new cars and trucks, computers and telephone charges actually fell, providing shoppers with some bargains.
Competitive factors, cheaply priced imports and signs that consumers who kept buying throughout the recession don’t have a lot of pent-up demand coming out of it are restraining price increases for some goods, economists said.
But prices for medical care continued to go up, rising 0.4% in March.
Clothing prices rose 1.2%, the largest since August 1998, reflecting the introduction of higher-priced spring and summer clothes. But economists predict apparel prices will moderate as seasonal items are discounted.
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Consumer Price Index
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