Economic activity good across country despite hurricanes in South
Wednesday, October 19th 2005, 8:19 pm
By: News On 6
WASHINGTON (AP) _ Most of the country managed decent economic growth in September and early October even amid soaring energy prices from hurricanes Katrina and Rita, the Federal Reserve reported Wednesday.
The Fed survey, the latest snapshot of business activity nationwide, is based on information collected before Oct. 11 and supplied by the 12 regional Federal Reserve banks. The report will figure into the discussions and decision-making of Fed policymakers at their next meeting on Nov. 1, when it is likely they will continue raising interest rates.
Katrina ripped through parts of Louisiana, Mississippi and Alabama in late August, causing widespread destruction. The blow was compounded by Rita, which struck on Sept. 24. Both hurricanes hobbled important oil and gas facilities along the Gulf Coast, pushing energy prices even higher.
Despite that, the Fed survey found that economic activity continued to expand. ``Most districts described the pace of activity as moderate or gradual,'' the report said.
The stock market welcomed the Fed report and got a boost from falling crude oil futures as investors overcame their disappointment about Intel Corp.'s earnings and troubling sales forecasts. The Dow Jones industrials gained almost 129 points to close at just over 10,414.
The impact from the hurricanes could be seen everywhere, according to the Fed's survey. All regions reported rising costs for energy, building materials, shipping and other items. Reports from several regions suggested that some of the increased costs are being passed along to consumers in the form of higher retail prices.
``Chicago cited price increases for pharmaceuticals and air travel. In Richmond and Atlanta, retailers and other business firms reported passing their cost increases through into their selling prices, and in Philadelphia and Dallas, large numbers of business firms said they have raised, or plan to raise their prices,'' the Fed survey said.
Other Fed regions reported that businesses are being more restrained in raising prices to consumers. The San Francisco region reported that consumer prices have remained stable, while Boston and Chicago noted the ability of local businesses to raise prices was limited.
Many economists believe the Fed will boost short-term interest rates by one-quarter of a percentage point, to 4 percent, at the November meeting to fend off an outbreak of inflation. Such a move would mark the 12th increase of that size since the Fed began to tighten credit in June 2004.
That expectation was reinforced by comments Wednesday from two Fed officials.
``My focus at this time is naturally on keeping inflation contained,'' Fed board member Donald Kohn said in a speech in Pittsburgh.
Richard Fisher, president of the Fed's Dallas regional bank, said in a speech in Houston, ``I'm fully confident that the Fed will continue to do its part by containing inflationary expectations and pressures.''
Fed policy-makers at their last meeting on Sept. 20 suggested that inflation posed a bigger risk to the economy's health than did the prospects of major slowdown in growth.
Private economists believe fallout from the hurricanes will reduce growth over the rest of the year by as much as a full percentage point. While that would slow the U.S. economic expansion, it would not derail it, analysts said.
Federal Reserve Chairman Alan Greenspan, in a speech on Monday, said global growth also will be constrained by the sharp rise in energy prices brought on by the hurricanes.
``Although the global economic expansion appears to have been on a reasonably firm path through the summer months, the recent surge in energy prices will undoubtedly be a drag from now on,'' he said. Greenspan did not quantify the slowdown.
In the Fed survey, retail sales of general merchandise rose in most of the Fed's districts. Auto sales, however, fell in all areas as manufacturers ended discounts.
Manufacturing activity expanded in all regions except for St. Louis and Atlanta, the Fed district that includes that communities hardest hit by the hurricane.
In other economic news, housing construction rose in September to the highest level in seven months, temporarily defying expectations of a slowdown in the booming housing market.
The Commerce Department reported construction of new homes and apartments rose 3.4 percent last month to a seasonally adjusted annual rate of 2.11 million units, the fastest pace since last February. Analysts had forecast a decline.
The Fed's survey said that while residential real-estate activity remains brisk, a number of districts noted ``demand for housing was slowing in some regions.''