Reports Likely to Bolster Case for Rate Hike
This week’s reports on employment, consumer spending and consumer confidence are likely to give the Federal Reserve more justification for its widely anticipated interest rate increase at this week’s policy meeting, analysts said. All 29 of the primary dealers in Treasury securities say they expect the Fed to raise the federal funds rate on overnight loans between banks by at least a quarter percentage point to 5% from 4.75% this week. By the time Fed policymakers sit down for their sessions Tuesday and Wednesday, they will have seen three of the week’s key economic indicators:
* A Commerce Department report today that analysts expect to show that consumer spending increased 0.6% in May while personal incomes rose 0.5%.
* A Conference Board report Tuesday that probably will show consumer confidence climbed to 136.3 in June from 135.8 during May.
* A Commerce Department report Tuesday that probably will show that sales of single-family homes fell 1.9% in May to a seasonally adjusted 959,000, still a strong market.
Fed officials will not have seen another of the week’s significant indicators, the unemployment report, because it won’t be issued until Friday. It’s not likely to make them regret a decision to raise rates. Analysts expect that the unemployment rate probably held at 4.2% in June, tying a three-decade low, as the economy added more than 200,000 nonfarm jobs. That would put job growth for the first half of the year at 1.2 million.
Statistics on manufacturing will probably point to more growth as well. The Chicago and national purchasing managers reports, set for release Wednesday and Thursday, both held above 50, a sign the manufacturing economy is expanding, analysts said. And a Commerce Department report Friday is expected to show that factory orders rebounded in May after falling during April.
Another Conference Board report, for release Wednesday, is expected to point to continued economic growth in the months ahead. The index of leading economic indicators, intended to project economic growth over the next six to nine months, probably rose 0.2% in May after falling 0.1% during April.
