Report Expected to Show Continued Discounting

U.S. companies are keeping discounts and incentives in place to encourage the consumer and business demand needed to stoke the economy, a government report may show this week.

Prices paid to factories and other producers for goods excluding energy and food may have risen 0.1% in June, matching the May increase, according to the median of 37 estimates in a Bloomberg News survey. The Labor Department is scheduled to issue the report Friday.

Producer prices in May were 0.1% lower than a year earlier. An absence of inflation allows Federal Reserve policymakers to keep borrowing costs at the lowest in 45 years until the economy shows clear signs of acceleration.

For companies, the discounting can chip away at profits.

“Certainly, the marketplace remains very difficult,” Paul Ballew, director of market analysis for General Motors Corp., the world’s biggest automaker, said last week. “Most manufacturers have the gloves off.”

Auto industry incentives in June rose an average of $191, or 5.8%, from May, to $3,499 a vehicle, according to CNW Marketing Research. Spending on incentives rose 1.4% to $3,969 at GM and 2.4% to $3,711 at Ford Motor Co., the world’s No. 2 automaker.

DaimlerChrysler’s Chrysler Group, the No. 3 car company in the U.S., spent an average of $3,496, down from $3,511 in May, CNW said. DaimlerChrysler said last month that it probably would have a loss of $1.2 billion in the second quarter, mainly because of such costs.

The incentives seem to be working. U.S. auto sales rose to a seasonally adjusted annual rate of 16.4 million vehicles in June from 16.1 million a month earlier.

“The economic environment is trending upward,” Gary Dilts, senior vice president of sales for Chrysler, said after the company reported that its June sales rose 6%. “Interest rates are at all-time lows, the numbers from Wall Street are heading north and consumer confidence is on the rise.”

Santa Clara, Calif.-based 3Com Corp., the world’s No. 3 maker of computer networking equipment, said last month that it planned to reduce prices to spur demand. 3Com Chief Executive Bruce Claflin said the company aimed to price its products at least 25% below those of its rivals.

The economy may grow at a 3.5% annual rate in the current quarter and at 3.7% by the end of the year, based on the median of 60 estimates in a Bloomberg survey of economists taken June 25 to July 2.

The producer price report will follow the release of statistics Thursday on the costs of imported goods.

Higher energy costs may have lifted both the import and the producer price indexes, economists said. Crude oil futures for July delivery rose to a high last month of $32.36 a barrel, compared with $29.56 at the end of May.

Including energy and food, the producer price index may have gained 0.3% after a 0.3% decrease in May, a Bloomberg survey found.

Companies paying higher prices for raw materials are finding ways to cut costs when they can’t charge more for their own goods and services.

The number of Americans filing first-time jobless claims may have eased to 420,000 in the week that ended Saturday from 430,000, economists said. Last week would be the 21st straight with claims above 400,000, a number some economists say is the dividing point between job growth and job loss.

Here’s a summary of key business events and reports due this week:

Today

* The Federal Reserve will report data on consumer borrowing. It may report a $5-billion increase in consumer borrowing during May, less than half the $10.7-billion rise in April, economists said in a survey.

Thursday

* The Labor Department will post the costs of imported goods. The Labor Department’s import price index may have risen 0.5% in June after a 0.3% May decrease, according to the median forecast in a Bloomberg survey.

Friday

* The Labor Department will issue its report on the U.S. producer price index and will garner some attention amid nagging worries that a widespread decline in prices could hinder companies’ ability to earn profits

* The Commerce Department will release its monthly trade figures. It may say the U.S. had a $41.5-billion trade deficit in goods and services for May after April’s $42-billion shortfall, economists said.