Retail Sales Stall, Inflation Picks Up: U.S. Economy Preview
By Vince Golle
Sept. 10 (Bloomberg) -- Retail sales in the U.S. fell last month and industrial production cooled, pointing to slower economic growth that Federal Reserve policy makers expect will muffle inflation, economists expect reports this week to show.
Purchases at retailers declined 0.2 percent, reflecting weaker auto sales, according to the median estimate of economists in a Bloomberg News survey before the Commerce Department's Sept. 14 release. Output at the nation's factories, mines and utilities probably rose 0.2 percent in August, half the July gain, according to the survey median.
Inflation persisted last month even as economic growth moderated. Consumer prices excluding fuel and food may have increased in the last 12 months by the most since November 2001, economists expect the Labor Department to report on Sept. 15. Even so, economists and traders expect Fed policy makers to hold interest rates steady when they meet next week.
``They know the fires of inflation are intensifying; it's just that if growth is forecast to slow, then they don't have to come off the sidelines,'' said Chris Rupkey, senior financial economist at Bank of Tokyo-Mitsubishi UFJ Ltd. in New York.
The Labor Department is forecast to report that core consumer prices, which exclude energy and food, increased 2.8 percent in August from the same time last year. Compared with July, they probably rose 0.2 percent for a second month. Prices of all goods and services were up 0.2 percent last month after a 0.4 percent gain, according to the Bloomberg survey.
Fed's Pianalto
Fed officials may be more tolerant of recent data showing rising prices because they expect slower growth to help bring inflation down later this year. Federal Reserve Bank of Cleveland President Sandra Pianalto said last week that central bankers last month had room to stop raising interest rates because past increases have yet to take hold.
``Although the elevated inflation numbers concerned me, and indeed they still do,'' economic growth had begun to ``moderate,'' said Pianalto, explaining why she voted with the majority of the Federal Open Market Committee Aug. 8 to leave the benchmark rate at 5.25 percent after two years of increases.
The expected decline in August retail sales would be the second in the last three months. Automakers reported sales at an annual rate of 16.1 million, slower than the 17.2 million in July and the weakest in three months. The struggling domestic auto industry, along with a battered housing market, explains why some economists are lowering their forecasts for economic growth later this year.
General Motors Corp., the biggest U.S. automaker, said that it will cut North American production 12 percent in the fourth quarter. Ford Motor Co. said in August that it was planning a 21 percent reduction in output.
Industrial Production
The Fed's industrial production data on Sept. 15 will probably reflect a 0.1 percent rise in factory output last month, according to economists at Lehman Brothers. Vehicle production probably declined 5.4 percent, they estimate.
The economy will grow at an annual rate of 2.5 percent in the fourth quarter, Credit Suisse economists Neal Soss and Jay Feldman wrote in a report to clients. The growth rate compares with their previous estimate of 3.2 percent.
``The cuts in fourth-quarter auto production will have a larger impact on industrial production growth,'' they said. ``Motor vehicles account for about 6.5 percent of industrial production and about 3 percent of the gross domestic product.''
The economy will grow at a 2.8 percent rate this quarter and a 2.6 percent pace from October through December, according to the median forecast of 81 economists surveyed by Bloomberg from Sept. 1 through Sept. 7. Growth averaged 4.3 percent in the first half.
Effect of Housing Slowdown
The retail sales report may show that the housing market's decline after five record years limited demand for appliances, furniture and household furnishings, economists said.
Also this week, the Commerce Department is forecast to report the U.S. trade deficit widened to $65.5 billion in July, when crude oil prices rose and retail sales surged. The expected shortfall would follow a $64.8 billion gap in June, the Sept. 12 report may show.
Crude oil costs have since declined, pushing the average price of retail gasoline to $2.68 a gallon last week, the lowest since April. The decrease brightened consumers' spirits early this month, a University of Michigan survey is forecast to show. The university's index of consumer sentiment probably increased to 84 this month from 82 in August.
Fuel Costs
Cheaper fuel and faster wage growth will help keep consumer spending from slumping, economists said. Employee compensation rose at an annual rate of 6.6 percent in the second quarter, according to a recent Labor Department report.
``While we still expect consumer spending to cool modestly over the next year as a result of the dropping housing market, we do not expect the sort of severe drop that would both drag down growth to recession-type levels and cool down inflation on its own without the help of further Fed hikes,'' economists at Lehman Brothers said in a report to clients.
By Vince Golle
Sept. 10 (Bloomberg) -- Retail sales in the U.S. fell last month and industrial production cooled, pointing to slower economic growth that Federal Reserve policy makers expect will muffle inflation, economists expect reports this week to show.
Purchases at retailers declined 0.2 percent, reflecting weaker auto sales, according to the median estimate of economists in a Bloomberg News survey before the Commerce Department's Sept. 14 release. Output at the nation's factories, mines and utilities probably rose 0.2 percent in August, half the July gain, according to the survey median.
Inflation persisted last month even as economic growth moderated. Consumer prices excluding fuel and food may have increased in the last 12 months by the most since November 2001, economists expect the Labor Department to report on Sept. 15. Even so, economists and traders expect Fed policy makers to hold interest rates steady when they meet next week.
``They know the fires of inflation are intensifying; it's just that if growth is forecast to slow, then they don't have to come off the sidelines,'' said Chris Rupkey, senior financial economist at Bank of Tokyo-Mitsubishi UFJ Ltd. in New York.
The Labor Department is forecast to report that core consumer prices, which exclude energy and food, increased 2.8 percent in August from the same time last year. Compared with July, they probably rose 0.2 percent for a second month. Prices of all goods and services were up 0.2 percent last month after a 0.4 percent gain, according to the Bloomberg survey.
Fed's Pianalto
Fed officials may be more tolerant of recent data showing rising prices because they expect slower growth to help bring inflation down later this year. Federal Reserve Bank of Cleveland President Sandra Pianalto said last week that central bankers last month had room to stop raising interest rates because past increases have yet to take hold.
``Although the elevated inflation numbers concerned me, and indeed they still do,'' economic growth had begun to ``moderate,'' said Pianalto, explaining why she voted with the majority of the Federal Open Market Committee Aug. 8 to leave the benchmark rate at 5.25 percent after two years of increases.
The expected decline in August retail sales would be the second in the last three months. Automakers reported sales at an annual rate of 16.1 million, slower than the 17.2 million in July and the weakest in three months. The struggling domestic auto industry, along with a battered housing market, explains why some economists are lowering their forecasts for economic growth later this year.
General Motors Corp., the biggest U.S. automaker, said that it will cut North American production 12 percent in the fourth quarter. Ford Motor Co. said in August that it was planning a 21 percent reduction in output.
Industrial Production
The Fed's industrial production data on Sept. 15 will probably reflect a 0.1 percent rise in factory output last month, according to economists at Lehman Brothers. Vehicle production probably declined 5.4 percent, they estimate.
The economy will grow at an annual rate of 2.5 percent in the fourth quarter, Credit Suisse economists Neal Soss and Jay Feldman wrote in a report to clients. The growth rate compares with their previous estimate of 3.2 percent.
``The cuts in fourth-quarter auto production will have a larger impact on industrial production growth,'' they said. ``Motor vehicles account for about 6.5 percent of industrial production and about 3 percent of the gross domestic product.''
The economy will grow at a 2.8 percent rate this quarter and a 2.6 percent pace from October through December, according to the median forecast of 81 economists surveyed by Bloomberg from Sept. 1 through Sept. 7. Growth averaged 4.3 percent in the first half.
Effect of Housing Slowdown
The retail sales report may show that the housing market's decline after five record years limited demand for appliances, furniture and household furnishings, economists said.
Also this week, the Commerce Department is forecast to report the U.S. trade deficit widened to $65.5 billion in July, when crude oil prices rose and retail sales surged. The expected shortfall would follow a $64.8 billion gap in June, the Sept. 12 report may show.
Crude oil costs have since declined, pushing the average price of retail gasoline to $2.68 a gallon last week, the lowest since April. The decrease brightened consumers' spirits early this month, a University of Michigan survey is forecast to show. The university's index of consumer sentiment probably increased to 84 this month from 82 in August.
Fuel Costs
Cheaper fuel and faster wage growth will help keep consumer spending from slumping, economists said. Employee compensation rose at an annual rate of 6.6 percent in the second quarter, according to a recent Labor Department report.
``While we still expect consumer spending to cool modestly over the next year as a result of the dropping housing market, we do not expect the sort of severe drop that would both drag down growth to recession-type levels and cool down inflation on its own without the help of further Fed hikes,'' economists at Lehman Brothers said in a report to clients.
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