Energy costs stir worries in U.S. economic expansion

WASHINGTON Wed Apr 11, 2012 4:01pm EDT

Kenny Sharrar pumps fuel into his truck at a Chevron gas station in Buckeye, Arizona October 27, 2011. REUTERS/Joshua Lott

Kenny Sharrar pumps fuel into his truck at a Chevron gas station in Buckeye, Arizona October 27, 2011.

Credit: Reuters/Joshua Lott

WASHINGTON (Reuters) - U.S. economic activity kept growing moderately in the late winter months but rising energy prices were beginning to worry manufacturers and retailers across the country, the 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 stronger manufacturing activity, steady hiring and improved retail business in much of the country. But overlying that was a sense of concern that costlier energy and rising gasoline prices were a threat.

"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.

Its description of growth at a "modest to moderate pace" was unchanged from the prior summary issued at the end of February. But coming after last week's government report showing only 120,000 jobs created in March, the fewest since October, it sounded a bit more upbeat about the job market.

"Hiring was steady or showed a modest increase across many districts," it said. "Difficulty finding qualified workers, especially for high skilled positions, was frequently reported."

Fed policymakers will use the information to assess the economy when they meet April 23-24 to consider whether to change interest-rate policy.

Atlanta Fed Bank President Dennis Lockhart, a voting member of the policy-setting Federal Open Market Committee, said on Wednesday he would be "somewhat reticent to consider another round of quantitative easing" at this time.

The Beige Book's caution about rising energy prices seemed to be borne out in separate Labor Department data showing 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 Labor Department said.

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

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

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

The data underscores 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 Labor Department report showed they rose 0.8 percent last month, above analysts' expectations for a 0.4 percent gain. Export prices increased 0.4 percent in February.

Markets showed little direct reaction to any of the day's data. Stock prices were higher near the trading session's close but that followed five days of losses. Treasury debt prices were lower.

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

(Additional reporting by Jason Lange and Leah Schnurr in New York Editing by W Simon and David Gregorio)

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Comments (10)
valwayne wrote:
Folks, all of that is just a nice way of telling you we are headed back into recession. Look up ECRI and Lakshman Achuthan the experts that predicted the last two recessions spot on. We’ve been in a bubble created by Obama’s massive wasted spending on things like Solyndra, truly nation destroying levels of debt, and trillions in funny money created by the Federal Reserve to prop up Obama’s debt. The air is stating to come out of the bubble and high energy prices, also cause by Obama’s anti-drilling policies, is poking holes in the bubble and causing the air to leak out even faster. The only question is whether the real pain caused by Obama’s policies sets in before, or after, the Nov election. Its hard to say because its hard to kill the American economy no matter how hard Obama tries.

Apr 11, 2012 4:08pm EDT  --  Report as abuse
USAPragmatist wrote:
@valwayne, yes those Obama policies that have given us 20+ straight months of job growth after the worst job losses since the onset of the great depression.

Apr 11, 2012 4:31pm EDT  --  Report as abuse
USAPragmatist wrote:
As I have said before, we are starting to pay the price for not having a national energy policy for the last 40+ yrs. To a reasonable person the Arab Oil embargoes of the 1970′s would have mandated a national energy policy to ween us off oil and other fossil fuels gradually. But no, the oil lobby has so much power that the oil companies still even get subsidies, much less let us have a national energy plan that focuses on weening us off oil. All in the name of the all mighty dollar, so the oil companies can make as much money as possible before it all runs out.

For the last 3 years, domestic oil production has gone up for the first time in 20+ years, yet prices keep rising. this is because the world demand for oil is starting to exceed supply, and many think we have or are about to reach peak world oil production. We are dealing with a finite resource, and no matter how much the ‘drill, baby, drill’ crowd screams, that does not change the fact that increased drilling is going to create more oil at of thin air.

To put it simply, to base one’s economy on the continued availability of cheap,plentiful oil is just plain retarded.

Apr 11, 2012 4:43pm EDT  --  Report as abuse
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