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Wholesale Costs Soar, Home Building Slows: U.S. Economy Preview

Wholesale Costs Soar, Home Building Slows: U.S. Economy Preview

Oct. 16 (Bloomberg) -- Businesses last month faced the same pricing pressures as consumers, soaring energy costs, and home construction slowed as interest rates rose along with inflation, economists said in advance of reports this week.

Wholesale prices rose 1.2 percent, the biggest rise since last October, according to the median estimate of economists surveyed by Bloomberg News before a report from the Labor Department on Oct. 18. Builders broke ground on 1.975 million homes at an annual rate last month, the fewest since March, economists forecast the Commerce Department to report Oct. 19.

Consumer prices rose last month by the most in a quarter century as gasoline prices took a record-breaking leap, Labor reported last week. Businesses are likely to start raising prices to recover the spiraling costs of fuel, raising concern inflation will accelerate more generally. That threat will keep Federal Reserve policy makers raising their target interest rate in coming months, economists said.

``The risk of spillover from the rising trend in energy prices will likely prompt the Fed to head off more lasting damage,'' said Robert DiClemente, chief U.S. economist at Citigroup Inc., in an Oct. 14 note to clients.

The surge in fuel costs has yet to make its way down to other goods. Core wholesale prices, which exclude food and energy costs, probably rose 0.2 percent last month, matching the average monthly gain since the beginning of the year, according to the survey median.

Federal Reserve

Central bankers will boost the target rate for overnight loans between banks, currently at 3.75 percent, by a quarter percentage point when they meet in November, according a preliminary Bloomberg News survey. It would be the 12th straight increase of a quarter percentage point since June 2004.

The Fed will release its survey of regional economic activity, known as the beige book for the color of its cover, on Oct. 19. Policy makers and investors will be looking for anecdotal evidence that inflation outside of fuel costs is beginning to stir.

Rohm & Haas Co., the world's biggest producer of acrylics used in paints and plastics, plans to raise prices to meet increased raw materials costs, the Philadelphia-based company said Oct. 11.

``Sustained increases in raw materials, energy, and freight costs and the effects of Hurricane Katrina have made the situation worse, and we expect costs to remain significantly high well into 2006,'' said M. Reggie Horne, general manager North America for Rohm and Haas Powder Coatings, in a statement.

Home Construction

Rising interest rates and the hurricanes that ravaged the Gulf Coast contributed to a drop in home building last month, economists said. It would be the third consecutive decline in housing starts.

The Oct. 19 report on home construction is also expected to show that permits, considered an indicator of future building, dropped to an annual pace of 2.071 million, the fewest since May, according to the median forecast.

An index of builder optimism probably dropped to 64 this month, the lowest since June 2003, a report from the National Association of Home Builders on Oct. 18 is expected to show.

``There has been some spotty signs of a cooling in the broader housing market,'' said Joseph Abate, a senior economist at Lehman Brothers Inc. in New York.

The index of leading economic indicators due from the New York-based Conference Board on Oct. 20 probably fell 0.5 percent last month, the biggest decline since March, according to the survey median. The decline may be led by the drop in consumer expectations, one of 10 components of the index.

Manufacturing Surveys

The leading indicators, which the research group designed to signal how the economy will perform in the next three to six months, also dropped in July and August.

Regional manufacturing surveys from the Fed are expected to show factory activity improved this month. The New York Fed's index, due tomorrow, probably rose to 19 from 17 in September, while a similar index from the Philadelphia Fed on Oct. 20 is expected to rise to 10.5 from 2.2. Readings greater than zero suggest business improved from the previous month.

Finally, first-time applications for jobless benefits probably fell to 368,000 in the week ended yesterday from 389,000 the previous week, the Labor Department is expected to report Oct. 20. The number of claims is likely to keep dropping as fewer victims of the hurricanes file, economists said.

 
                          Bloomberg Survey 
  
 Date    Time   Period  Indicator               BN Survey   Prior 
 10/17    8:30   Oct.   Empire Manufacturing      19.0      17.0 
 10/18    8:30   Sept.  PPI Ex-food & energy      0.2%      0.0% 
 10/18    8:30   Sept.  Producer Price Index      1.2%      0.6% 
 10/19    8:30   Sept.  Housing Starts           1.975M    2.009M 
 10/20    8:30   10/8   Continuing Claims         2875K     2873K 
 10/20    8:30   10/15  Initial Jobless Claims    368K      389K 
 10/20   10:00   Sept.  Leading Indicators        -0.5%     -0.2% 
 10/20   12:00   Oct.   Philadelphia Fed          10.5       2.2 
 

To contact the reporter on this story:
Carlos Torres in Washington [e-mail].


LINK: http://www.bloomberg.com/apps/news?pid=10000087&sid=asi8JI9n30Sw&refer=top_world_news