August 21, 2017

Consumer Inflation Stabilizing, Industrial Output Up

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

Jobless Claims Surge in Wake of Storm

Initial claims for state unemployment benefits rose 78,000 to a seasonally adjusted 439,000, the Labor Department said. That was the highest level since April 2011 and well above the median forecast in a Reuters poll. It was also the biggest one-week increase in new claims since 2005.

“Stepping back from the storm distortions, the economy is growing at about 2 percent,” said Ryan Sweet, senior economist at Moody’s Analytics in West Chester, Pennsylvania. “We will likely see a step back in job growth … because of Sandy. The economy is just muddling along.”

An analyst from the Labor Department said several states from the mid-Atlantic and Northeast reported large increases in claims due to Sandy, a mammoth storm that slammed into the East Coast in late October.

The storm left millions of homes and businesses without electricity, shut down public transportation and caused widespread damage in costal communities. However, the economic impact of the storm is likely to be temporary.

Economists expect the storm could shave as much as half a percentage point from economic growth in the last three months of the year, but should be made up early next year.

Retail sales data on Wednesday pointed to a softening in U.S. consumer spending early in the fourth quarter as Sandy slammed the brakes on automobile purchases last month.

The four-week moving average for jobless claims, which smoothes out volatility, rose 11,750 to 383,750. Economists generally think a reading below 400,000 points to an increase in employment.

Dow and SP index futures turned negative after the data, while U.S. Treasury debt cut early price losses. The dollar pared losses against the euro and pared gains against the yen.

MODEST INFLATION

A separate report showed consumer prices edged higher last month as the cost of shelter jumped by the most in over four years, while gasoline prices fell.

The Consumer Price Index increased 0.1 percent last month, in line with analysts’ expectations, data from the Labor Department showed.

The data pointed to only modest inflation pressures that appear unlikely to derail the U.S. Federal Reserve’s plan to keep interest rates low for an extended period.

“I wouldn’t say that core CPI is worrying at all,” said David Sloan, an economist at 4Cast in New York.

Prices for shelter, which include rent, rose 0.3 percent during the month, the most since 2008, and accounted for over half of the overall increase in the CPI. That could be a hopeful sign for the economy if it is because landlords felt they have more leverage to raise rents. Rents for primary residences rose 0.4 percent.

Gasoline prices fell 0.6 percent in October after climbing 7 percent the prior month. That was the first drop in gasoline prices since June. Higher costs at the pump have forced many American consumers to cut back on other spending.

A measure of underlying inflation was relatively muted. The core CPI, which excludes food and energy prices, increased 0.2 percent.

In the 12 months to October overall consumer prices increased 2.2 percent, up a tenth of a point from September’s reading. Core prices rose 2 percent in the year through October.

Most economists don’t see inflation threatening the economy in the short or long term.

A gauge of manufacturing in New York state showed that activity slowed in November for a fourth straight month, the New York Federal Reserve said.

Despite the decline, new orders rose, the first positive reading for the forward-looking component index since June.

The survey of manufacturing plants in the state is one of the earliest monthly guideposts to U.S. factory conditions.

(Reporting by Jason Lange; Additional reporting by Chris Reese and Edward Krudy in New York; Editing by Neil Stempleman)

Article source: http://www.nytimes.com/reuters/2012/11/15/business/15reuters-usa-economy.html?partner=rss&emc=rss