Producer Prices Pinched By Most Since 1975 vs CPI: Chart of Day

Producer Prices Pinched By Most Since 1975 vs CPI: Chart of Day

Oct. 2 (Bloomberg) -- U.S. manufacturers, squeezed by a credit crunch and sagging consumer confidence, are left with stark choices on job cuts and buying new equipment, according to JPMorgan Chase & Co.

``Profit margins have been slipping for some time and business is increasingly sensitive to downside shocks,'' said Bruce Kasman, chief economist at JPMorgan. Even if Congress passes a comprehensive aid package for banks, ``spending and hiring cutbacks will intensify.''

The CHART OF THE DAY compares the so-called core producer price index, which excludes fuel and food, with the counterpart for consumer prices. PPI accelerated faster than CPI in August by the widest since 1975, signaling the inability or reluctance of manufacturers to pass along costs to customers.

Another indicator that illustrates the margin squeeze is the quarterly price deflator for non-farm businesses, though figures have only been released for the April to June period, Kasman said by e-mail.

``We look for U.S. businesses to pull back in the coming two quarters, with investment spending expected to reverse course at an 8 percent annualized pace,'' Kasman said. ``We also expect payroll losses to average 150,000 per month over this period, double the pace thus far this year.''

The job cuts, along with ``a sustained period of below-trend global growth,'' will reduce some need for new plants and equipment, as utilization of existing factories will probably decline, he said.

BLOOMBERG