Atlanta Fed Hints At Slower Growth Survey Of Southeast Companies Suggests U.S. Economy Is Losing Steam

The U.S. economy may be starting to throttle back and inflation may be picking up, suggests a monthly survey by the Federal Reserve Bank of Atlanta.

Figures released Monday show that companies based in the bank’s district - in Alabama, Florida, Georgia, and parts of Louisiana, Mississippi and Tennessee - are less optimistic about their prospects over the next six months.

The number of respondents expecting higher output in the next half year fell to 46.8 percent from 51.0 percent in February and 54 percent in January, the Atlanta Fed said. In addition, the volume of new orders at Southeastern factories fell in March as inventories of finished goods rose.

Those findings track with expectations that “the second quarter is going to come in weaker because a good deal of the strength was pulled into the first quarter” by unusually warm weather, said Mark Vitner, an economist at First Union Corp. in Charlotte, North Carolina.

Overall, the Atlanta Fed’s national business activity index rose to a seasonally adjusted 10.3 last month. That’s up from a revised 7.1 in February but still short of January’s reading of 13.8. A positive index means more of the region’s manufacturers reported an increase in business than reported a decline.

The report “depicts an economy continuing to expand,” although the data “indicate a deceleration in activity,” said Marilyn Schaja, an economist with Donaldson, Lufkin & Jenrette in New York.

The Atlanta Fed report also suggested inflation in the region could rise in the months ahead, even though prices aren’t rising rapidly at the moment.

While the raw materials price index, which measures what producers pay their suppliers, fell to 15.2 in March from 17.7 the previous month, the survey showed a big increase in the number of Southeastern manufacturers who expect inflation to be a problem six months from now. The index of price expectations jumped to 39.3 from 27.4.

The finished goods price index, meantime, increased to 2.9 from 0.9, suggesting some of those manufacturers are already passing on price increases to consumers.

Investors kept U.S. bond yields near nine-month highs today amid concerns the Labor Department’s consumer price report for March to be released today may show an acceleration of inflation. Analysts surveyed by Bloomberg News expect the March consumer price index and its core index, which excludes volatile food and energy costs, to have increased by 0.3 percent in March, faster than February’s 0.2 percent increase.

A Labor Department economist said the core index may have crept higher last month because of the return of a tax on airline tickets and rising apparel prices.

March inflation readings above those amounts could seal the case for another Federal Reserve increase in the overnight bank lending rate to cool the economy.

The benchmark 30-year U.S. Treasury bond was little changed to yield 7.17 percent in late New York trading, near its highest level since last July. Higher-than-expected earnings from Travelers Group Inc. and Coca-Cola Co. helped offset interest-rate concerns, analysts said.

One of the clearer signs of slower growth in the Atlanta Fed report was the index of new orders, which fell to a minus 0.8 from a positive 14.3 in February. About a quarter of the region’s manufacturers were reporting an increase in orders in March, compared with a third a month earlier.

That could reflect a slowdown in housing nationwide, said First Union’s Vitner, since many lumber and building supply companies are based in the South.

Catalina Lighting Inc. is among those who see a national downturn ahead. The Miami-based company said late last month it plans to shut down its light-making factories in Meridian, Mississippi by the end of September. Catalina blamed the move on limited demand for its custom-made light fixtures.

“When we entered this business we had strong indications that this product line would be successful,” said Catalina Chairman and CEO Robert Hersh. “Unfortunately, for various reasons, we could not sell these products in sufficient volumes to our core customer base.”

Still, more Southeastern manufacturers added jobs in March than pared their payrolls, leading companies to remain optimistic.

“We anticipate that if there is a continuation of this year’s economic picture, consumption will remain healthy,” said Daniel Loh, who manages investor relations at Norcross, Georgia-based Alumax, the third largest U.S. aluminum producer.

And Alumax isn’t noticing any price pressures yet. “Labor costs are in line with growth in the economy and inflation,” Loh said. “There’s no particular bias coming from the labor side” that would prompt the company to raise its prices, he said.

It’s concern about “persisting” growth that prompted Fed policymakers to raise the rate on overnight loans between banks by a quarter point to 5.50 percent for the first time in more than two years. Since the Fed acted three weeks ago, a new batch of economic data has portrayed an economy maintaining momentum.

The Fed itself will likely report on Wednesday that industrial production rose 0.6 percent last month, according to a survey of analysts by Bloomberg News - keeping policymakers on edge.