Tags: US | Economy

Data Point to Slow, Steady U.S. Recovery

Tuesday, 15 Dec 2009 10:39 AM

Further evidence that manufacturers are helping the economy slowly recover emerged Tuesday in a report that industrial production rose a better-than-expected 0.8 percent in November.

The gain showed that consumers are spending more, causing manufacturers to produce more goods.

Eventually, the economic rebound could raise inflationary pressures. One reminder was a separate report Tuesday that wholesale inflation surprisingly surged last month. Still, many analysts said the economy remains so weak that they didn't think the price increases would last.

The Federal Reserve begins a two-day meeting Tuesday and likely will weigh the bigger-than-expected increases in industrial output and wholesale prices. Should inflation pressures mount, the central bank could be forced to start raising interest rates sooner than expected.

But Fed policymakers aren't expected to raise a key rate at the end of their meeting Wednesday. The Fed has kept rates at record-low levels to bolster the shaky recovery.

Stronger activity at mines led last month's increase in industrial production, rising 2.1 percent. The manufacturing sector — the biggest chunk of industrial output — reversed a one-month decline and rose 1.1 percent. Utilities did fall 1.8 percent, according to the Fed report Tuesday.

The portion of industrial capacity in use rose to 71.3 percent in November, from 70.6 percent in October. It shows that factories, mines and utilities are using more of their plants as the recovery takes root. But capacity use remains far below the 80 percent and higher levels that existed for much of the past decade.

Wholesale prices jumped 1.8 percent in November, the Labor Department said. That's more than double the 0.8 percent gain analysts expected. Core inflation, which excludes energy and food, rose 0.5 percent, the biggest increase in more than a year.

Over the past 12 months, wholesale prices rose 2.4 percent, the biggest gain over an annual period since October 2008. Wholesale prices had been negative when compared with year-ago levels for 11 straight months.

The November increase followed a 0.3 percent rise in October and was the largest one-month change since August, a gain also driven by energy.

The unexpectedly large jump in wholesale prices was not likely to alter the outcome of the Fed's deliberations although it might influence future actions. The Fed was expected to announce on Wednesday that it would again keep a key interest rate between zero and 0.25 percent where it has been for a year.

While unemployment dropped slightly in November to 10 percent, from a 26-year high of 10.2 percent, analysts believe it will resume rising in coming months, acting as a further drag on economic growth. The high unemployment levels have kept a lid on prices, as workers afraid of being laid off, have moderated wage demands.

In a recent speech, Fed Chairman Ben Bernanke said that the economy continues to confront "formidable headwinds" as it struggles to mount a sustained recovery.

Wholesale energy prices jumped 6.9 percent in November, the biggest surge since August. Gasoline prices rose 14.2 percent, while the cost of home heating oil jumped 18.3 percent last month.

Still, oil prices have been falling in recent days, hovering around $70 per barrel. That's down from a 2009 high of $82 per barrel hit in October.

Food prices rose 0.5 percent at the wholesale level last month, following a1.6 percent rise in October.

The 0.5 percent rise in core inflation, which excludes food and energy, followed a 0.6 percent drop in October.

A 4.2 percent increase in the cost of light trucks and sport utility vehicles led the gain. The cost of cigarettes rose 2.6 percent.

The Producer Price Index reflects price pressures before they reach the consumer. The government will release its look at consumer prices on Wednesday. Economists believe they will show a more moderate gain of 0.4 percent, with core consumer prices expected to rise 0.1 percent.

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Further evidence that manufacturers are helping the economy slowly recover emerged Tuesday in a report that industrial production rose a better-than-expected 0.8 percent in November.The gain showed that consumers are spending more, causing manufacturers to produce more...
US,Economy
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2009-39-15
Tuesday, 15 Dec 2009 10:39 AM
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