Factory activity in the U.S. Mid-Atlantic region recovered in October from a post-Katrina slump as new orders jumped, but a key inflation measure spiked to its highest in 25 years, a survey showed on Thursday.
The Philadelphia Federal Reserve Bank said its business activity index rebounded to 17.3 in October from 2.2 in September, well above economists’ median forecast for a rise to 10.0.
Any reading above zero points to growth in the region’s manufacturing sector.
Activity had nearly stalled in September in the aftermath of the hurricane, while costs had doubled as energy prices rose.
But in October, prices continued to surge higher, with the key prices paid index jumping to 67.6 from 52.7. That was the highest reading since November 1980, according to the Philadelphia Fed.
The dollar firmed and Treasuries retreated after the stronger-than-expected report.
“Higher prices for final manufactured goods were also more widespread this month, suggesting that higher costs have been passed on to customers,” the Philadelphia Fed said.
Thirty-three percent of the firms reported higher prices for their goods, compared to 22 percent last month.
The prices received index rose 24 points to its highest reading in 12 months.
“Expectations about future prices remain elevated: 62 percent of the firms expect input prices to rise over the next six months; 49 percent expect increases in the prices of their own manufactured goods,” the Fed said.
Federal Reserve officials this week have stressed the importance of fighting inflation and dampening expectations of future inflation, in a series of speeches that have cemented views that official U.S. interest rates have further to rise.
The next Fed policy meeting is on Nov. 1 and most economists expect another rate increase in key short-term rates.
“The idea that both prices paid and received rose is consistent with what the Fed has been saying a lot this week, which is that they are still concerned with inflation,” said Bob Lynch, head of G10 forex strategy at HSBC in New York.
A key indicator of future growth, the new orders index, jumped in October to 18.6 after a minus 0.5 reading in September’s Philly Fed survey.
The survey’s employment index also rose sharply, to 17.0 from 2.7 in September.
The regional survey is one of the first indicators of U.S. manufacturing every month and is often used to gauge the overall state of factories nationwide.