Market News

 April 12, 2012
Energy costs raise concerns over growing U.S. economy, Fed says

 U.S. economic activity kept expanding moderately in the late winter months but rising energy prices were beginning to worry manufacturers and retailers across the country, the U.S. Federal Reserve said on Wednesday.

"Reports from the 12 Federal Reserve districts indicated that the economy continued to expand at a modest to moderate pace from mid-February through late March," the central bank said in its latest "Beige Book" summary of national activity.

Positive signs, it said, included steady hiring and shortages of skilled workers in many areas as well as robust new-vehicle sales that were stimulating more manufacturing activity.

But costlier energy and rising gasoline prices cast a shadow over prospects, the Fed summary said.

"While the near-term outlook for household spending was encouraging, contacts in several districts expressed concerns that rising gas prices could limit discretionary spending in the months to come," it added.

The report, based on data collected before April 2, comes from business contacts in each of the 12 districts that have regional Fed banks and is thus seen as a real-life complement to the more academic speeches and analyses that flow from the central bank.

It reflected a degree of caution about rising energy prices that seemed to be borne out in Labour Department data on Wednesday showing that imported petroleum costs were still on the rise.

March import prices climbed by the most in nearly a year on sharply higher petroleum costs, the Labour Department said.

Imported petroleum prices alone increased 4.3 per cent, the biggest gain since April, 2011.

That helped drive overall import prices up 1.3 per cent for the biggest monthly gain since April, 2011, the Labour Department added.

Economists polled by Reuters had expected import prices to rise 0.8 per cent last month. February's data were revised to show a 0.1-per-cent decline instead of the previously reported 0.4-per-cent increase.

The data underscore the size of the price shock that is stinging Americans when they refuel their cars.

There are ample signs that higher gasoline prices are a weight on the U.S. economy, still burdened by high unemployment and a soft housing sector following the 2007-2009 recession.

Applications for U.S. home mortgages fell last week despite a drop in the average interest rate for 30-year mortgages, the Mortgage Bankers Association said in a separate report on Wednesday.

As for export prices, the Labour Department report showed they rose 0.8 per cent last month, above analysts' expectations for a 0.4-per-cent gain. Export prices increased 0.4 percent in February.

Markets showed little reaction to any of the day's data. Stock prices were higher at mod-afternoon but that followed five days of losses. Treasury debt prices were lower.

Higher prices for energy have fuelled inflation in recent months but a still-weak jobs market has made it harder for businesses to pass those costs on to consumers.

A report last week showing slower job growth in March has fuelled speculation the Federal Reserve could ease monetary policy further. Most major Wall Street firms expect the Fed to launch a third round of bond buying, a Reuters poll found on Monday.

U.S data scheduled for release on Thursday are expected to show tame price pressures at a wholesale level, with producer prices seen rising 0.2 per cent in March when stripping out food and energy.