- The Washington Times - Thursday, May 15, 2003

ASSOCIATED PRESS

Wholesale prices plunged by a record 1.9 percent in April as the end of the Iraq war removed pressures on energy costs, which posted their largest drop in nearly 17 years. Operating capacity at big industry nose-dived to the lowest ebb since 1983.

The big drop in the Producer Price Index, which measures the prices of goods before they reach store shelves, marked an about-face from March when higher energy prices, stoked by the war, helped to catapult wholesales prices up by a hefty 1.5 percent, the Labor Department reported.

Yesterday’s report makes clear that inflation isn’t a problem for the economy, but it might intensify fears about whether the United States is heading down a path of a destabilizing fall in prices.

In other economic news, the Federal Reserve reported that production at the nation’s factories, mines and utilities fell by 0.5 percent in April for the second month in a row, a fresh sign that manufacturing is the weakest link in the economy. Economists were forecasting a 0.4 percent decline.

Operating capacity sank to 74.4 in April, the lowest level since June 1983, as big industry throttled back production amid lackluster customer demand.

The drop in the PPI in April was more than double the 0.7 percent decline that economists predicted.

Gasoline and home-heating-oil prices in April each fell by record amounts, good news for businesses and consumers, who have felt the strain of higher energy prices on their budgets and spent more cautiously in return.

Already worried about sluggish growth, Federal Reserve policy-makers last week raised a new concern — that the country could face deflation, a prolonged bout of falling prices. Though they indicated the chance of this was remote, it still represented a potential threat to the economy. Fed policy-makers signaled they were prepared to cut rates, now at a 41-year low, to ward off the threat of deflation at its next meeting on June 24-25.

Separately, fewer U.S. workers filed new claims for unemployment benefits for the third straight week, a small dose of good news for the largely stagnant job market. The department, in that report, said new applications for jobless benefits fell by a seasonally adjusted 13,000 to 417,000 last week. New jobless claims above the 400,000 mark are a associated with a weak job market.

The number of workers continuing to collect unemployment benefits shot up by 120,000 to 3.77 million for the week ending May 3, the most recent period for which that information is available. That marked the highest level since Nov. 17, 2001, and suggested that not a lot of hiring is going on.

In the PPI report, the 1.9 percent drop registered in wholesale prices surpassed the previous record decline of 1.6 percent set in October 2001.

Much of the weakness in April’s wholesale prices reflected lower energy costs. Energy prices dropped by 8.6 percent in April, the biggest decline since July 1986. That marked a turnaround from March, when energy prices, pushed higher on war tensions, rose by 5.7 percent.

In April, retreating energy costs were led by a record drop in gasoline prices, which plunged by 22.3 percent, and a record decline in home-heating oil, which plummeted by 29.3 percent.

Costs for liquefied petroleum gas, such as propane, fell 25.9 percent. Residential natural gas prices went down by 3.1 percent.

Food prices, however, rose by 0.9 percent in April, a big pickup from March’s tiny 0.1 percent rise.

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