New York Fed Warning: Service Sector Input and Selling Price Growth Rise Together, Price Pressures Significant

Perhaps the report released by the New York Fed on Friday shows that service sector business leaders generally reported pricing difficulties in October and held a pessimistic attitude toward the business outlook. In this month's latest edition of the Business Leaders Survey, the bank said: "The pace of input price increases remains rapid, and the rise in selling prices accelerated to the fastest rate since 2022." The report added that "supply availability continued to deteriorate." These price pressures facing business leaders come as the report found that the business climate was "far worse than normal" and that firms were increasingly pessimistic about the outlook. The report said current business activity was also weakening, with the overall index falling 12 points to negative 20.7, the weakest reading since March. The pessimism captured by the New York Fed survey contrasts with other data showing strong economic activity, a stable low unemployment rate, and robust investment in the technology sector. Nevertheless, the survey's pessimistic findings on inflation align with a series of statistics showing that price pressures remain strong and energy costs are surging under the continued impact of U.S. President Trump's trade tariffs and the U.S.-Israel war in the Middle East. High inflation prompted the Federal Reserve to raise interest rates last month and likely to raise them again before the end of the year. However, Fed Chair Kevin Warsh gave no guidance in remarks on Thursday evening, saying: "I will not prejudge the meeting... I do not think I should now announce what I may do at the remaining meetings this year." Chicago Fed President Austan Goolsbee said in an interview with Yahoo Finance on Wednesday that the consumer-level inflation report released on Wednesday was "disappointing," and noted that "if you break down the components, there is almost no sign of improvement in services inflation." Goolsbee said: "We need to pay close attention" to this part of the price pressure landscape, "because it is not really coming from supply shocks." The severe price pressures indicated by the New York Fed survey come as the government reported that import prices surged in September, with costs that month rising at a rate of 1.1%, far exceeding expectations. The Business Leaders Survey also noted that capital expenditure plans were "weak," while pointing out that "supply availability is expected to continue deteriorating." The weakening of the October Business Leaders Survey, combined with the bank's other regional data, indicates that the economic environment in the New York region is mixed. The bank's October Empire State Manufacturing Survey released on Thursday showed that the overall business conditions index rose to a five-year high, but at the same time it faced "elevated" input and selling prices and supply chain-related challenges.