The economy was hit with a double dose of bad news Wednesday as the government reported a jump in consumer prices and a plunge in orders for ”big ticket” manufactured goods.
Rising energy costs fueled a 0.5 percent increase in consumer prices in August, up from a 0.2 percent increase in July, according to the Bureau of Labor Statistics.
The Commerce Department reported that durable goods orders fell 3.1 percent, or $3.38 billion, in August, the first decline since January as demand for military hardware and aircraft slumped. Durable goods orders were flat in July following a 2 percent June increase.
On the inflation front, it was the biggest one-month gain in the consumer price index since January`s 0.7 percent rise and boosted the annual inflation rate to 5.1 percent. It now appears the 1987 inflation rate will be the highest since 1981, when prices went up 8.9 percent. Inflation was 1.1 percent last year.
Prices in the Chicago area rose even more, climbing 0.8 percent in August, up from a 0.3 percent increase in July.
The August price jumps surprised economists, who had predicted increases of 0.2 to 0.3 percent.
”It`s somewhat higher than expected, but not out of line,” said Robert G. Dederick, chief economist at Northern Trust Co. ”We had the sharp rise in energy prices, and that`s not going to continue.”
Those sentiments were echoed in Washington. ”It`s not the kind of good news I like to give,” said White House spokesman Marlin Fitzwater. ”We do think it`s temporary.”
Gasoline led the price parade, climbing 3.1 percent after a 1.1 percent increase in July. Fuel oil prices were up 1.4 percent after increasing 0.9 percent in July.
Energy prices have been rising steadily since the collapse of world oil prices in 1986, which was largely responsible for last year`s low inflation rate. Energy prices are rising at a 15.2 percent annual rate.
”We`ve had some softening in crude oil prices, so I think we`ll get some fallback there,” Dederick said.
Even without energy prices, the underlying inflation rate is substantially higher than it was a year ago. The fall of the dollar has increased prices for imported goods and given a slight boost to domestic manufacturers.
”They`re in a better position to push prices ahead than a year ago,”
Dederick said.
Prices for goods other than energy and food rose 0.4 percent in August, up from a 0.3 percent increase in July.
Housing prices rose 0.6 percent after a 0.2 percent rise in July and are climbing at a 5.1 percent annual rate.
Nationally, the consumer price index stood at 342.7, which means the typical market basket of goods that cost $100 in 1967 now costs $342.70. A year earlier, that basket cost $328.60.
For the Chicago area, the consumer price index stood at 348.8, up 5.3 percent in the last 12 months. Lois Orr, regional Bureau of Labor Statistics commissioner, blamed the August increase on rising energy costs, sharply higher apparel costs and housing costs that are rising slightly faster than in the nation as a whole.
The decline in durable goods orders disappointed analysts, since a moderate increase had been expected. Some predicted the economy would not be as robust in coming months.
”Durable goods orders were weak across the board. I think the economy will be significantly weaker in the fourth quarter than it was in the third quarter, and this report is a forerunner of that weakness,” said Allen Sinai, chief economist at Shearson Lehman Brothers Inc.
Of particular concern was an 8.4 percent decline in orders for nondefense capital goods, a category that reflects business investment plans in heavy equipment and capital goods. Analysts blamed the upturn in interest rates.
”Businesses got scared off by rising interest rates, and they started canceling orders. I think interest rates will have a serious effect on the economy,” said Michael Evans, head of a Washington consulting firm.
Administration officials remain upbeat, however. Commerce Undersecretary Robert Ortner said that durable goods orders have been strong for most of the year. The August decline was the first since a record 9.8 percent drop in January.
