US companies face rising cost pressures
By Andrew Balls in Washington and Jennifer Hughes in New York
Published: December 1 2004 15:24 | Last updated: December 1 2004 15:24
Cost pressures are increasing for companies across the US, according to a Federal Reserve survey, but while companies have passed on cost increases there has been little increase in retail prices.
The Fed's Beige Book, which periodically collates anecdotal evidence from across its 12 districts, said that companies reported increased prices for energy, transportation, and food and other commodities.
While there was evidence of greater tolerance of price increases as a result of higher energy and commodity prices among business customers, competitition had prevented retailers from passing on cost increases to their customers, the report said.
The Fed said that manufacturing and service sector activity was strong across the US, but that consumer spending had been mixed in the period from mid-October to mid-November.
There was some evidence that demand for higher-end products had been stronger than for low-priced lines, suggesting that lower-income households have been more affected by higher energy prices.
Wal-Mart, the giant discount retailer, has reported a sluggish start to the holiday shopping season.
Other economic reports released yesterday showed strong manufacturing activity, personal income growth and spending, and buoyant business confidence - bolstering expectations for firm fourth-quarter growth.
The releases reinforced expectations that the Federal Reserve will continue raising interest rates when it meets later this month.
Indications that inflation pressures remain under control suggest the Fed will not be forced to take aggressive action to curb inflation but policymakers see the federal funds rate, at 2 per cent, as too low to maintain price stability over time.
The Institute for Supply Management reported that its monthly index of manufacturing activity rose in November to 57.8 from 56.8, indicating faster expansion than economists predicted.(A reading above 50 on the index indicates expansion.)
Production slowed slightly last month, but the new orders, inventories and employment components increased. Prices paid for commodities and other inputs continued to rise, but while still high the prices paid index fell from 78.5 to 74, last month.
“There was some drop in pricing pressures - though there is still plenty of pricing pressure in the pipeline,” said Carey Leahy, economist at Deutsche Bank. .
The Business Roundtable, the big business lobby group chaired by Hank McKinnell, Pfizer's chief executive, yesterday highlighted cost pressures from rising healthcare costs as well as energy costs and commodites. “There probably is more pricing flexibility than a year ago. But it's still very difficult to get prices up,” Mr McKinnell said.
The group released an upbeat survey of CEO confidence, which was conducted last month. Fifty per cent of companies expected to increase capital spending over the next six months, while 43 per cent expected to maintain current levels. In another report yesterday, the Commerce Department said consumer spending jumped 0.7 per cent in October - well above consensus expectations. However, stripping out inflation in particular higher petrol prices real spending rose 0.3 per cent in October, down from 0.5 per cent in September.
The personal consumption expenditures inflation index rose by 0.4 per cent in the month. However, the core PCE index, the Fed's favoured inflation measure which excludes food and energy, rose just 0.1 per cent. The core PCE index rose by 1.5 per cent in the year to October, the middle of the Federal Reserve's presumed comfort range of 1-2 per cent. The core PCE index has changed little recently, although other inflation measures have moved higher.
Personal income rose by 0.6 per cent - its biggest one-month jump since May. Wages, the biggest single factor in income, rose by 0.5 per cent. Inflation-adjusted income rose by 0.2 per cent compared with 0.1 per cent in the previous month. However, the savings rate fell to 0.2 per cent - the lowest since October 2001.
news.ft.com |
