New York Fed warns: Service sector input and sales prices surge, significant price pressure

Perhaps, according to a report released on Friday by the New York Fed, service sector business leaders generally reported pricing difficulties in October and held a pessimistic outlook for business prospects.

In its latest issue of the "Business Leaders Survey" this month, the bank stated: "The pace of input price increases remains rapid, and the rise in sales prices has accelerated to the fastest pace since 2022." The report also added, "Supply availability continues to deteriorate."

The price pressures faced by business leaders coincide with the report's finding that the business climate is "far worse than normal," and companies are increasingly pessimistic about the outlook. The report said current business activity is also weakening, with the overall index dropping 12 points to -20.7, the weakest reading since March.

The pessimism detected by the New York Fed's survey contrasts with other data showing strong economic activity, stable low unemployment, and robust investment in the technology sector.

Nonetheless, the survey's gloomy findings on inflation align with a range of statistical data indicating that, under the continued impact of President Trump's trade tariffs and the ongoing U.S.-Israel war in the Middle East, price pressures remain strong and energy costs have soared.

High inflation prompted the Fed to raise interest rates last month and it is likely to do so again before the end of the year. However, Fed Chair Kevin Walsh gave no guidance in his remarks on Thursday night, saying: "I won't prejudge the meeting... I don't think it's appropriate to announce now what actions I might take at the remaining meetings this year."

Chicago Fed President Austan Goolsbee said in an interview with Yahoo Finance on Wednesday that the consumer inflation report released that day was "disappointing," and pointed out that "when breaking down the subcomponents, there is almost no sign of improvement in service sector inflation."

Goolsbee said: "We need to closely monitor" this part of the price pressure landscape, "because it doesn't really come from supply shocks."

The severe price pressures highlighted by the New York Fed's survey come at a time when government data show September import prices soared, with costs that month rising at a higher-than-expected rate of 1.1%.

The "Business Leaders Survey" also pointed out that capital spending plans are "weak," while noting that "supply availability is expected to continue to worsen."

The weakening of the October "Business Leaders Survey," combined with other regional data from the bank, shows that the economic environment in the New York region is uneven. The bank's Empire State Manufacturing Survey released on Thursday showed the overall business conditions index rose to a five-year high, but at the same time faces "elevated" input and sales prices as well as supply chain-related challenges.