Economic Data Expected to Wave Few Inflationary Flags
Reports due out this week are expected to show a U.S. economy growing with few signs of inflation, which might give Federal Reserve policymakers further reason to hold the line on interest rates when they meet Aug. 22. The Federal Reserve on Tuesday will report on output at U.S. factories, mines and utilities for July. In June, output rose 0.2%, smaller than the 0.6% average gain for the first five months of the year. On Wednesday, the Labor Department will report the consumer price index for July. In June, the CPI increased 0.6%. Excluding food and energy, the so-called core CPI rose 0.2%. Consumer prices have been rising at a faster pace this year than last, mostly because of higher costs for oil and its products--gasoline and heating oil, for example. The CPI was 3.7% higher in June than a year ago. For all of last year, consumer prices were up just 2.7%. Along with the CPI report, figures on real earnings in July will be released. The month before, weekly earnings adjusted for inflation rose 0.1%.
“The economy has continued to show signs of cooling off,” said Kevin Flanagan, an economist at Morgan Stanley Dean Witter in New York. “And as long as that’s the case and there’s no inflation out there of consequence, there’s not an urgency for the Fed to raise rates at this point.” The Fed’s policy-setting Open Market Committee has raised the interest rate on overnight loans between banks six times since June of last year to make consumer and business borrowing more expensive and to curtail what the central bank has said is excess demand that threatens to spark inflation. The overnight rate now stands at a nine-year high of 6.5%.
Other data due this week:
* Today, the Commerce Department issues its report on inventories at the nation’s businesses for June. In May, they rose 0.8% and business sales rose 1%.
* Wednesday, the Commerce Department will issue its housing starts report for July. In June, the pace of home building declined to a two-year low of 1.55 million units in June.
* Thursday, the Federal Reserve Bank of Philadelphia will issue its monthly factory index for August, which is expected to show an increase to 5 from 0.7 in July.
* Friday, the Commerce Department will report on the U.S. trade deficit for June. In May, it hit a record $31 billion.
* Also on Friday, the Treasury is expected to report a monthly budget surplus of $800 million for July, compared with a deficit of $25.2 billion in the same month a year ago, as the government continues on a path to produce a third straight annual surplus.
