A jump in capacity use by US industry prompted concerns about inflationary pressures on Tuesday even as a further fall in new home activity supported expectations that the US economy would slow in coming months.
Producer price data, which showed a large energy-related jump yet little other pressure, clouded the picture but only heightened the intense debate about inflation ahead of Wednesday’s consumer price index, a broader gauge of how price pressures are feeding through into the general economy
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Industrial production rose by 0.8 per cent last month – twice the rate expected. But economists focused on the capacity utilisation rate, which rose from 81.4 per cent to 81.9 per cent, putting it at or around the “boom-bust” level above which analysts expect greater inflationary pressure.
“This marks a new expansion high and will continue to be a concern, given Fed worries about resource utilisation,” said Rick MacDonald at Action Economics, which has calculated a “boom-bust” level of 82.5 per cent.
Lehman Brothers economists put the level at 81.5 per cent. “We are growing increasingly concerned about the inflation outlook,” said Drew Matus, economist at the bank. “At the same time, the long-awaited slowdown in housing appears to be here, lending support to our forecast for a growth slowdown in the second half of the year.”
The Commerce Department reported on Tuesday that new housebuilding “starts” slid 7.4 per cent in April to an annual rate of 1.85m – the slowest since November 2004. It was the third straight decline in the data, a gauge of activity in the housing market, where rising interest rates are damping activity.
Earlier in the week a report from the National Association of Home Builders showed the industry’s confidence was at its lowest since 1995.
The Fed raised rates last week by a quarter-point to 5 per cent, and signalled that future rate moves would depend on fresh data.
Those looking for signs of price pressures also found more in yesterday’s April producer price index. The main measure jumped 0.9 per cent, boosted by rising energy prices, for an annual rate of 4 per cent.
