September 30, 2022

Wholesale Prices Decreased in June

Producer prices declined in the United States in June, dragged down by a fall in energy prices such as those for gasoline and electrical power, according to government statistics released Thursday.

The Bureau of Labor Statistics report showed that its index of wholesale prices fell 0.4 percent in June, following a rise of 0.2 percent in May. The decline last month was the steepest since February of last year and it exceeded analysts’ forecasts of a 0.2 percent drop.

The 2.8 percent decrease in energy prices was the largest drop in that category since a 4.7 percent decrease in July 2009. Prices for gasoline, which had been rising in the first part of the year partly because of turmoil in Arab oil-producing countries, moved down 4.7 percent, the department said. The decline in energy prices more than offset the rise in food, which was up 0.6 percent in June.

When the volatile food and energy prices are extracted from the overall index, the core Producer Price Index rose 0.3 percent in June after a 0.2 percent increase in May, making it the seventh consecutive monthly rise.

The core index has risen 2.4 percent in the last year, the government report said.

The fact that the core price index rose was “somewhat of a relief,” especially to the Federal Reserve, said Cliff Waldman, an economist for the Manufacturers Alliance. “It is a sign we have gotten out of the deflationary danger zone.”

The Federal Reserve chairman, Ben S. Bernanke, said on Wednesday that a renewed threat of deflation was one condition that could cause the central bank to resume its economic aid campaign, called quantitative easing.

The data on producer prices was one in a series of reports on Thursday that showed the state of the economy.

In the week ended July 9, the number of initial claims for unemployment benefits was 405,000, a decrease of 22,000 from the revised figure of 427,000 in the previous week, according to the Department of Labor.

Economists said that overall, the decline in the weekly number was a positive sign, at least for one week.

But a better gauge, they said, is the four-week average, which also fell but remained above 400,000, a benchmark for job growth.

“The rule of thumb is that whenever you have the four-week moving average that goes under that number, that usually is a sign associated with payroll growth,” said Gregory Daco, the principal United States economist for IHS Global Insight.

So despite the most recent week’s decline, the current numbers are “still indicating some weakness in the unemployment market,” he said.

The Department of Commerce reported that retail sales in the United States rose 0.1 percent in June, after a decline of 0.1 percent in May. The increase was due partly to a rise in auto prices.

“On the auto retail sales side of things, it seems that the supply chain disruptions emanating from the mid-March earthquake in Japan are probably easing,” said Chris G. Christopher Jr., the senior principal economist for IHS Global Insight in a research note.

Over all, he said, the economy still has a number of pressure points. Unemployment rose to 9.2 percent in June, according to the latest government report. The stock market is volatile, consumer confidence is depressed and home prices are still scraping the bottom.

“Consumers are fatigued,” he wrote. “The only real good news on the consumer side of the economy is that gasoline prices started to fall, but are still relatively high.”

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Midwest Manufacturing Picked Up Steam in June

The Institute for Supply Management, Chicago, said on Thursday that its business barometer rose to 61.1 after slowing abruptly to 56.6 in May. The gain defied economists’ expectations for a decline to 54.

The sturdy factory activity in the automotive-heavy region ended a string of weak regional manufacturing surveys and raised optimism that the economy might start to emerge from the soft patch of the first half of the year.

“This may be an indication that we are at least at the bottom of this slowdown, not only in manufacturing but also economic,” said Millan Mulraine, senior macro strategist at TD Securities in New York. “In the months ahead we are likely to see a resurgence in growth.”

But optimism was tempered somewhat by a separate report from the Labor Department showing that initial claims for state unemployment benefits slipped just 1,000 to 428,000 last week. Economists had expected claims to drop to 420,000.

It was the 12th straight week that claims have been above 400,000, a sign the labor market has stagnated. Employment stumbled badly in May, with employers adding just 54,000 jobs — the fewest in eight months.

The brightening manufacturing picture was enhanced by a survey from the Federal Reserve Bank of Kansas City that showed factory production in its region rebounded strongly this month after slumping in May.

The bullish reports prompted some institutions, including Deutsche Bank and JPMorgan, to raise their forecasts for Friday’s Institute for Supply Management index of national factory activity. They now expect the index to show underlying strength in a sector that has led the economic recovery.

Details of the Chicago Purchasing Managers Index survey were generally upbeat, with new orders and production rising. The employment index was lower but still indicated expansion.

“The recovery in the Chicago P.M.I. strongly suggests that manufacturing activity got a noticeable boost from improving auto sector conditions in the back half of the month,” said Joseph A. LaVorgna, chief United States economist for Deutsche Bank.

Recent surveys from the New York and Philadelphia regional Fed banks have shown steep declines in factory activity in those two areas, but Mr. LaVorgna said the Chicago PMI had a bigger weighting in the ISM index than the other two combined.

A report on Wednesday showed Japanese factory output rose by the most in almost 60 years in May, pointing to a speedy restoration to earthquake-damaged supply chains.

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U.S. Hit a Record for Exports in April

The Commerce Department report said that exports of goods were $126.4 billion and services $49.1 billion, while total imports were $219.2 billion, resulting in a trade deficit of $43.7 billion, the lowest since December. The deficit in March was revised down to $46.8 billion from $48.2 billion, the department said.

The gap had been forecast by some economists to widen to $48.8 billion.

In recent months, a weaker dollar has made goods from the United States less expensive overseas, while exports have also climbed in price as demand rose in developing countries.

The department said the March-to-April increase in exports of goods reflected greater sales of industrial supplies and materials, capital goods and consumer goods. The decline in imports was caused, in part, by a decrease in automotive parts, vehicles and industrial supplies and materials, the department said.

The data was the first to reflect the impact of the supply chain disruptions from the natural disasters in Japan, as well as the impact of commodity prices in April, when the average price per barrel of crude oil was $103.18. That was the highest since September 2008, when it was $107.30.

The United States imported 8.41 million barrels of crude per day on average in April, the lowest amount since last October.

Imports from Japan dropped by $3 billion, shrinking the American trade deficit with that country to $3.5 billion in April from $6 billion the month before.

The data also showed that the United States trade deficit with China continued to widen, to $21.6 billion in April from $18 billion in March, but still below January’s $23 billion. The trade deficit with China was $273 billion in 2010.

Meanwhile, the Labor Department said Thursday that the number of Americans who filed initial claims for unemployment edged higher in the week ending June 3, to 427,000, up by 1,000. Economists usually interpret any level above 400,000 to mean a lack of job growth.

Economists say that domestic demand in the United States is still weak. And while the rise in exports of goods was helping to offset that weakness, exports compose only about 9.6 percent of the country’s gross domestic product.

Thursday’s report was the first to reflect trade statistics for the second quarter, and economists gave a range of effects from the data on their estimates for gross domestic product.

Gregory Daco, the United States economist for IHS Global Insight, said the trade numbers helped raise the company’s estimate for real gross domestic product growth to slightly above 2 percent.

“Over all, this report was a good one for the U.S. economy,” he said.

Kevin Logan, the chief United States economist for HSBC, said forecasts should take into account that the deficit declined mostly because of a drop in oil imports of $3.7 billion, while the non-oil trade balance actually worsened.

“Normally, an improvement in the trade balance leads to an increase in estimates of G.D.P. growth in the quarter,” he said in a research note. “But if the trade balance is improving because of an across-the-board drop in demand for oil products, there should be little impact on G.D.P. growth.”

Economists from Capital Economics said that they expected little contribution to second-quarter growth.

“Pretty much all of the sharp fall in the trade deficit in April will eventually be reversed as the temporary effects caused by disruptions from Japan’s earthquake fade,” the economists said in a research note.

“Nonetheless, a modest positive contribution to second-quarter G.D.P. growth may at least offset part of the slowdown in other parts of the economy.”

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