Washington – Consumer prices in May posted the first decline in 10 months as energy costs staged a sizable retreat. At the same time, the pace of activity at U.S. factories jumped sharply.
A variety of reports released Wednesday depicted an economy shaking off the effects of an oil-price surge in the early spring and resuming solid growth.
The Federal Reserve released a new nationwide survey of business conditions that described the economy as expanding at a healthy pace in recent weeks, with the Fed’s 12 regional banks describing activity with such words as “moderate,” “solid” and “well sustained.” The Fed report, which will serve as the basis for discussions when policymakers meet June 29-30, said manufacturing had continued to expand with labor markets improving in most districts.
But private analysts cautioned that even with May’s big drop in energy prices and the rebound in industrial production, the economy remained vulnerable to further oil-price hikes in the months ahead.
The Labor Department reported that its closely watched Consumer Price Index actually fell by 0.1 percent in May following significant increases in the previous three months that had been driven by a hike in energy costs. Crude-oil prices hit an all-time high of more than $57 per barrel in early April.
But energy prices fell in May, led by a 4.4 percent drop in the price of gasoline, the biggest one-month decline in pump prices since July.
Meanwhile, production at the nation’s factories, mines and utilities rose by 0.4 percent, double the gain analysts had expected. It reversed a 0.3 percent drop in industrial production in April and reflected a surge of 0.6 percent in output at American factories.
The overall gain in industrial production was led by a 0.6 percent increase in manufacturing output, which was the strongest performance in this sector in seven months and came after two back-to-back declines had raised worries about whether U.S. manufacturing, the hardest hit part of the economy in the 2001 recession, was once again faltering.
The manufacturing gain was led by strong increases in production of computers, electronics and food and beverages. Auto production, which had fallen sharply in March and April, held steady in May.
Economists said the Federal Reserve was likely to see the new economic data as providing support for the central bank’s course of raising interest rates gradually to make sure inflation remains contained.
They predicted a ninth quarter-point rate hike on June 30, which would push the federal funds rate to 3.25 percent.
