June 28, 2017

Inflation Shows Signs of Stability After Downward Drift

While inflation remains benign, the increase last month should help ease worries among some Fed officials that price pressures in the economy were too low.

“Inflation is carving out a bottom. We are likely to see inflation tick up slightly in the second half of this year,” said Ryan Sweet, a senior economist at Moody’s Analytics in West Chester, Pennsylvania. “The modest acceleration is welcome news for the Fed.”

The Labor Department said on Tuesday its Consumer Price Index increased 0.5 percent, the largest gain since February, after nudging up 0.1 percent in May.

A 6.3 percent surge in gasoline prices accounted for about two thirds of the increase.

In the 12 months through June, the CPI advanced 1.8 percent, an acceleration from the 1.4 percent logged in the period through May and the largest increase since February.

Stripping out energy and food, consumer prices increased 0.2 percent for a second straight month.

That took the increase over the past 12 months to 1.6 percent, the smallest rise since June 2011. The core CPI had gained 1.7 percent in May.

Although both inflation measures remain below the Federal Reserve’s 2 percent target, the report showed signs of fading disinflation pressures, with medical care costs increasing after being subdued for the past two months.

Prices for new motor vehicles, apparel and household furnishings also rose.

The signs of stabilization offered by the monthly core measure fit in with Fed Chairman Ben Bernanke’s assessment that a downward drift in the inflation rate was temporary.

Bernanke said last month the central bank would likely later this year start cutting back the $85 billion in bonds it is purchasing each month to keep borrowing costs low. Economists expect the Fed to begin reducing the amount in September.

“The lack of further slowing in core inflation on a monthly basis in the last two months helps keep Fed tapering on track,” said Jim O’Sullivan, chief U.S. economist at High Frequency Economics in Valhalla, New York.

BETTER GROWTH PROSPECTS

While the year-on-year core CPI rate could slip further in coming months, it should reverse course as economic growth accelerates over the last half of the year, economists said.

They expect a drop in unemployment to boost wage growth.

That optimism about the economy’s prospects was bolstered by a separate report from the Fed showing output at the nation’s factories, mines and utilities rose 0.3 percent in June after a flat reading in May.

The increase reflected a 0.3 percent rise in manufacturing output. Economists said it suggested some pickup in economic activity at the end of the second quarter. Growth in the April-June period is forecast at an annual pace of between 0.5 percent and 1.0 percent, far below the first-quarter’s 1.8 percent rate.

“If manufacturing growth is on the verge of accelerating into the second half of the year, this, along with solid gains in housing, should support growth in the second half of 2013,” said John Ryding, chief economist at RDQ Economics in New York.

Another report on Tuesday showed confidence among single-family home builders soared to a 7-1/2 year high in July, amid expectations of stronger sales and buyer traffic.

U.S. financial markets were little moved by the data as investors awaited testimony Bernanke is set to deliver to Congress on the economy on Wednesday.

Tepid growth has kept a lid on inflation pressures, but some pockets of pricing power are starting to emerge.

Last month, owners’ equivalent rent, which accounts for about a third of the core CPI, increased 0.2 percent after a similar gain in May. Apparel prices recorded their largest increase in nearly two years, while new motor vehicle prices rose after being flat in May.

Medical care services rose 0.4 percent, the largest increase in a year. Medical care, which makes up about 10 percent of the core CPI, had been subdued in April and May. The cost of medical care commodities rebounded 0.5 percent, reversing the prior month’s decline, as the price of prescription drugs increased.

Tame medical care costs have been one of the key contributors to the low inflation rate over the past months.

Economists cite a host of reasons for the lack of pressure on health care costs, ranging from the expiration of patents on several popular prescription drugs to government spending cuts that have cut payments to doctors and hospitals for Medicare.

“We think the impact of these transitions has started to fade away and we expect that drug price inflation may start to pick up over the months ahead,” said Ryan Wang, a U.S. economist at HSBC in New York.

(Reporting by Lucia Mutikani; Additional reporting by Richard Leong in New York; Editing by Andrea Ricci)

Article source: http://www.nytimes.com/reuters/2013/07/16/business/16reuters-usa-economy.html?partner=rss&emc=rss

Economix: 5 Questions About Friday’s Jobs Report

A job fair this week in Phoenix for positions at a grocery chain.Ross D. Franklin/Associated PressA job fair this week in Phoenix for positions at a grocery chain.

Below, we pose five questions to ask about Friday’s jobs report, much as we did a month ago. The big picture is that job growth has been picking up in recent months — but the job market is still a long way from being healthy, and the last month or so has offered new reason for concern.

The Labor Department will release the report at 8:30 a.m. Eastern time.

Our five questions:

1. Has the recent economic slowdown led to a slowdown in job growth?

The first quarter of this year had the strongest job growth since before the recession began, in late 2007. But that job growth came on the heels of accelerating economic growth in late 2010. The economy has slowed markedly in early 2011.

Ben S. Bernanke, the Federal Reserve chairman, and many private forecasters say they think the economic slowdown was mostly a blip. Do employers agree? Or have they cut back on hiring and potentially increased layoffs?

As a point of reference, the most recent Labor Department numbers show that economy added 216,000 jobs in March and an average of 159,000 over the past three months.

2. Has the crisis in Japan affected employment in this country?

This will be the first jobs report that will include the effects of the Japanese tsunami (because the survey period is the week that includes the 12th day of the previous month, and the tsunami occurred on March 11). One place to look for effects: the automobile industry, which has been hurt by a shortage of parts from Japanese factories.

Employment in the manufacturing subcategory known as Motor Vehicles and Parts has been growing recently, by an average of almost 4,000 jobs a month over the last six months, to 697,000. What happened in April?

3. Are the cutbacks by local and state governments becoming more severe — or perhaps less so?

They are major employers, with 19.3 million workers. But facing deficits, they have been laying off workers and hampering the recovery. Over the last year, they have cut an average of 24,000 workers a month (and at a fairly steadily pace over the year).

4. What does the length of the work week say about business executives’ state of mind?

Companies often increase existing workers’ hours shortly before they start hiring large numbers of new workers. That hasn’t happened much this year. The average work week in the private sector was 34.3 hours in March, up from 34.2 hours late last year.

An increase would be a sign that employers — like stock-market investors — do not seem scared by the recent slowdown in economic growth. A lengthening work week would also help increase workers’ paychecks at a time when hourly wage growth has been weak.

5. Do the statistical details in the report offer reason for optimism?

The Labor Department won’t be releasing only numbers for April on Friday. It will also be revising its estimates of job growth in February and March. Current estimates show employment gains of 194,000 for February and 216,000 for March. An increase in those numbers would suggest that the government’s surveys of employers are having a hard time keeping pace with new hiring — a common occurrence during a recovery.

Likewise, the government’s survey of households will also be worth watching. In recoveries, it often shows bigger job gains than the survey of employers. And it usually ends up being more accurate, partly because the employer survey misses the jobs created by start-up firms. From January to March, the household survey showed an average employment gain of 219,000 jobs, compared with 159,000 for the employer survey.

Article source: http://feeds.nytimes.com/click.phdo?i=d285df7740091bbbee42ec61d04d60fc