The US economy came under pressure from abroad in September as weak global demand appeared to hold back factory output and a surge in gasoline prices dented consumers' spending power, data showed on Tuesday. Other data showed only mild underlying inflation pressures, potentially giving the Federal Reserve room to keep interest rates low to boost the economy.
The US economy has shown signs of faster growth in recent months but Tuesday's reports highlighted some of challenges faced by the economy. "There are still a lot of global headwinds," said Jonathan Basile, an economist at Credit Suisse in New York. The Fed said US factory output rose only a modest 0.2 percent in September, which many analysts said was a sign the cooling global economy is weighing on American manufacturers.
The increase in output was not enough to make up for a sharp decline in August, and manufacturing production fell at a 0.9 percent annual rate in the third quarter. In a separate report, the Labour Department said a surge in the cost of gasoline pushed the country's Consumer Price Index up 0.6 percent in September. Higher costs at the pump force many American consumers to cut back on other spending, although retail sales data for September released on Monday pointed to a pick-up in consumer spending despite higher fuel costs.
The government said weekly earnings for workers were flat in September when adjusting for inflation. Crude oil and gasoline prices rose over the summer as the United States and its allies raised pressure on Iran over its nuclear programme. Prices for gasoline have comes down slightly in recent weeks, which could ease pressure on consumers this month. The inflation report also showed that prices outside food and energy - seen as a barometer of inflation trends - rose only 0.1 percent in September for the third straight month.
"The Fed can confidently focus on propping up the economy because inflation is not a problem," said Cary Leahey, an economist at Decision Economics in New York. The Fed said last month it would buy $40 billion in mortgage-backed securities every month until the jobs outlook improves substantially. Another report suggested the Fed's stimulus plan was gaining traction in the housing sector. Home-builder sentiment rose to a fresh six-year high in October, the National Association of Home Builders said.
In the 12 months to September, overall consumer prices increased 2 percent, the fastest pace since April and up from 1.7 percent in August. Core prices also rose 2 percent in the year through September, up a tenth of a point from August's reading. While most economists don't see inflation threatening the US economy, some believe the Fed would tolerate prices rising faster than the central bank's 2 percent target over the shorter term to allow stronger economic growth as the country recovers from the 2007-09 recession.
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