Thursday, January 16, 2003

Wholesale prices steady in Dec.; Fed survey released

By Jeannine Aversa
The Associated Press

WASHINGTON - Wholesale prices held steady in December as the sputtering economy made it difficult for some companies to charge more.

The flat reading in the Producer Price Index, which measures prices paid to factories, farmers and other producers, came after wholesale prices fell by 0.4 percent in November, the Labor Department reported Wednesday.

Despite "very poor" Christmas sales and "depressed" business loan demand, the Federal Reserve considered the Ohio region one of the nation's economic bright spots in its "beige book" report released Wednesday.

Many business conditions in the Cleveland District - which includes Ohio, western Pennsylvania, eastern Kentucky and West Virginia - were flat or showing slight improvement, indicating the economic decline here may have hit bottom.

In manufacturing, production and most costs were stable, and inventories were down. Retailers anticipate flat first-quarter sales. And while banks reported consumer loan activity was strong, they noted "the credit quality of applicants was very poor."

John Byczkowski

Excluding energy and food prices, which can swing widely, core wholesale prices dipped by 0.3 percent in December for the second straight month, suggesting some good deals are out there.

The Federal Reserve, meanwhile, painted a picture of a lackluster economy in its latest survey of business conditions. It found "subdued growth" in economic activity from mid-November through early January and little change in overall conditions.

The Fed said its regional banks used such words as "sluggish," "soft" and "subdued" to characterize growth. The Fed said the weakest report came from Dallas, which said activity "remained anemic."

Policy-makers will consider those findings when they next meet, Jan. 28-29, to decide the course of interest rates. Economists think that the Fed, which has pushed rates to a 41-year low, will leave them unchanged, preferring to see whether it has done enough to energize the economy.

In the Labor Department report, wholesale costs were flat. Falling prices for computers and cars offset higher prices for gasoline and other energy products.

Those declining prices - if passed on to shoppers - benefit consumers, but squeeze some companies' profits.

Businesses whose product prices are dropping may feel more pressure on already strained profit margins. But companies buying those lower-price goods might get a break through lower costs of doing business.

"With demand uncertain, many businesses have very weak, very uncertain pricing power," said economist Clifford Waldman, president of Waldman Associates. "Businesses, especially manufacturers, are struggling with the up and down recovery."

The latest snapshot of wholesale prices showed that inflation is not a danger to the economy, which is struggling to recover from the 2001 recession.

That inflation has remained under control is one of the reasons Federal Reserve Chairman Alan Greenspan and his colleagues have kept short-term interest rates at low levels in an effort to spur economic growth.

For all of 2002, wholesale prices rose a tame 1.2 percent, compared with a 1.6 percent drop in 2001.

Last year's pickup largely reflected rising energy costs. Energy prices rose 11.9 percent in 2002, a turnaround from a 17.1 percent decline in 2001.

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