Firms Are Passing Along Energy Hikes, Data Show
Some businesses are passing along energy costs to customers, as the economy is rebounding from Hurricane Katrina but showing signs of sluggish future growth, according to economic data released Thursday.
The Conference Board said its index of leading economic indicators, which is designed to show the likely direction of the economy in the next three to six months, fell 0.7% after declining 0.1% in August.
Economists generally had expected the index to decline 0.5% after an initially reported 0.2% drop in August, according a Bloomberg News survey. The decline was the third straight, the first time that has happened since 2001.
The leading economic index had 10 indicators, seven of which are known before the report: jobless claims, consumer expectations, the yield curve on Treasury securities, building permits, stock prices, supplier delivery times and factory hours. The remaining three -- new orders for consumer goods, nondefense capital goods and money supply -- are estimated by the Conference Board, a New York business research organization.
In a surprisingly strong report, the Philadelphia Federal Reserve Bank said its index of mid-Atlantic regional manufacturing rose to 17.3 this month from 2.2. Readings above zero mean that a higher percentage of those surveyed reported that business improved than reported it deteriorated.
Economists had expected the index to rise to 10, according to the Bloomberg survey.
But the Fed survey also produced a troubling sign, as the proportion of manufacturers reporting higher prices paid for materials rose to 68%, the highest level in 25 years. The proportion reporting higher prices received for their products jumped by the most since 1981, suggesting that companies may be having more success passing on costs to customers.
The report may reinforce the Federal Reserve’s view that faster inflation poses a greater risk than slower economic growth.
“Prices-received rising so much is the first sign that businesses have increased power to pass on these energy price increases,” said Chris Rupkey, senior financial economist at Bank of Tokyo-Mitsubishi Ltd. in New York. “This is what the Fed is worried about.”
In a separate report, the Labor Department said Thursday that 355,000 Americans filed initial claims for unemployment benefits last week, down 35,000 from the previous week, as filings by storm-displaced workers dwindled.
