By James Mehring Economic growth appears to be on an upward trajectory, at least through the first half of the year. Job growth is better, factories are busier, the housing market remains solid, and consumers are still hitting the malls. So if the economy is taking off, is inflation far behind?
Some evidence shows that prices are creeping higher. Rising demand for commodities combined with the weaker dollar have lifted prices of many raw materials. Import prices in March were reported up 0.9%. A large part of that came from higher petroleum prices, up 1.9% on the month. But even prices of nonpetroleum imports rose 1%. And February producer prices for crude goods less food and energy, items such as timber and metals, were up 26.2% from a year ago.
However, households aren't likely to bear the brunt of those upwardly spiraling prices anytime soon. Even with the upswing in demand and the increasing costs of making goods and providing services, companies may still find it difficult to get consumers to pay more. That's because the factory sector and labor markets still have plenty of slack, and competition is still fierce in many industries.
According to the consensus forecast of economists surveyed by Action Economics, March industrial output probably rose 0.4%, bringing the capacity utilization rate to 76.8%. That's still a bit below the long-run capacity utilization average of 81.1%. And despite the surge in business investment, prices of computers and other high-tech equipment are falling.
The difference between producer costs and consumer prices also shows that a broad upswing in inflation isn't coming soon. While crude goods are soaring, producer prices of final products are up just 2.1% from a year ago. And the March forecast for consumer prices puts the annual rate of inflation at 1.6%. The lack of pricing power is one reason why companies have been trying to squeeze as much productivity growth out of capital and labor as possible.
Here's the weekly economic calendar.
MEETINGS OF NOTE
Monday, Apr. 12
Vice-President Dick Cheney meets with Japan's Prime Minister Junichiro Koizumi on North Korea's nuclear arms program in Tokyo.
11:30 a.m. EDT
Treasury Secretary John Snow participates in a roundtable discussion and gives the keynote speech at a Small Business Administration conference in Kansas City.
12:45 p.m. EDT
President George W. Bush hosts Egyptian President Hosni Mubarak in Crawford, Tex. The two will hold a joint press conference.
MEETING OF NOTE
Tuesday, Apr. 13, 12:00 p.m. EDT
Treasury Assistant Secretary for Financial Institutions Wayne Abernathy takes part in a roundtable discussion on government-sponsored enterprises at Louisiana State University in Baton Rouge.
ICSC-UBS STORE SALES
Tuesday, Apr. 13, 7:45 a.m. EDT
This weekly tracking of retail sales, assembled by the International Council of Shopping Centers and UBS bank, will update buying activity for the week ending Apr. 10. In the week ended Apr. 3, seasonally adjusted sales rebounded 0.3%, after dropping 1.9% over the period ended Mar. 27.
Tuesday, Apr. 13, 8:30 a.m. EDT
Retail sales are expected to have increased another 0.7% in March, after a 0.7% jump in February, and a 0.3% rise in January. That's the median forecast of economists queried by Action Economics. Based on the March forecast, retail sales would be up by an annualized rate of 6.1% in the first quarter, after a 4.5% gain in the final period of 2003. The faster pace of retail sales should help push first-quarter gross domestic product to post a slightly bigger gain than the 4.1% posted in the fourth quarter of 2003.
Excluding vehicles, March sales are expected to have risen by 0.6%. In February, retail sales less motor vehicles were unchanged, after a 1.1% leap in January. Less autos, first-quarter sales would be up 6.6% based on the Action Economics forecast.
Overall, March sales were probably helped by chain-store sales, which were reported up a strong 7% from a year ago. Plus, higher gasoline prices should raise the value of sales reported by gasoline stations. The slight difference in the headline forecast and the rise excluding vehicles is due to the small acceleration in vehicle sales. During March, vehicle sales hit an annual pace of 16.6 million, after running at 16.3 million in February.
Tuesday, Apr. 13, 8:30 a.m. EDT
Inventories held by manufacturers, wholesalers, and retailers probably grew 0.3% in February, according to economists surveyed by Action Economics. In January inventories increased 0.1%, after expanding by 0.3% in each of the four prior months. The inventory rebuilding process is expected to accelerate during this quarter. Indeed, there's likely some upside risk to the forecast given the 1.2% surge in wholesale inventories over February, and factory inventories growing by 0.5% over the same period.
INSTINET REDBOOK RESEARCH STORE SALES
Tuesday, Apr. 13, 8:55 a.m. EDT
This weekly measure of retail activity will report on sales for the first fiscal week of April, ended Apr. 10. For the month of March, store sales ended up 0.4%. For the entire fiscal month of February, sales were up by 1.2% compared to January.
RICHMOND FED SURVEY
Tuesday, Apr. 13, 10 a.m. EDT
The Richmond Federal Reserve Bank will release its March survey of business conditions in the Richmond Fed district. The manufacturing activity index climbed to 19 in February, from 18 in January, and 8 in December.
The new orders and unfilled orders indexes both eased slightly. However, the news on employment was better, with the index tracking the number of employees rose to 1, from -8 in January. The average workweek appeared to lengthen, as the index grew to 13, from 0.
The outlook for the next six months was positive, but not as optimistic. The expectations index came in at 36, from 43 in December. Respondents also believed new orders and the backlog of unfilled orders will decelerate.
One particularly interesting piece of data was a big pickup in prices received by respondents. In February, regional manufacturers said they were able to lift prices by an annualized rate of 1.63%. A rather modest level and less than the 1.92% rise in input prices, but still a big jump from the 0.74% and 0.77% gains in January and December, respectively. With costs of raw materials rising at a strong clip, it would be welcome news for manufacturers if they could begin to pass along a greater share of those rising costs onto customers.
Tuesday, Apr. 13, 2 p.m. EDT
The Treasury Dept. releases the details on the government's budget for March, the fifth month of fiscal year 2004. The median forecast of economists queried by Action Economics is for a defict of $70 billion. In January, the Treasury reported a deficit of $96.7 billion, following a $1.4 billion shortfall in December. In March of 2003, the government rang up a $58.9 billion deficit. So far, the total deficit for fiscal year 2004 is $226.8 billion compared to a $194.2 billion deficit through the first five months of fiscal 2003, and a $67.7 billion deficit over the same period in fiscal 2002.
MEETINGS OF NOTE
Wednesday, Apr. 14
President George W. Bush hosts Israel's Prime Minister Ariel Sharon to discuss the Middle East crisis at the White House in Washington, D.C.
7:00 p.m. EDT
Federal Reserve Bank of San Francisco President Robert T. Parry discusses the regional and U.S. economic outlook at the State of the Economy Conference sponsored St. Mary's College in Moraga, Calif.
Wednesday, Apr. 14, 7 a.m. EDT
The Mortgage Bankers Assn. releases its tally of mortgage applications for both home buying and refinancing for the week ending Apr. 9. In the week ended Apr. 2, the purchase index turned higher, to 477.5, from 443.8 in the week ended Mar. 26, and 448.9 in the previous period. The latest reading of the four-week moving average through Apr. 2 moved up to 455.65, from 443.4 over the week ended Mar. 26. The average rate on a conventional 30-year mortgage, according to HSH Associates, rose to 5.7% in the week ended Apr. 2, from 5.56% over the week ended Mar. 19.
The refi index slowed to 4126.7 in the week ended Apr. 2. For the week ended Mar. 26, the refi index eased to 4857.6, from 4988.7 in the week ended Mar. 19. The refi index four-week moving average, however, kept climbing. For the period ended Apr. 2, the four-week average reached 4739.2, from 4599.4 in the previous period.
Stronger economic data, especially the March leap in employment, are likely to push mortgage rates higher. In fact, long-term Treasury bonds may show what's in store for mortgage rates. Since Apr. 1, the rate on a 30-year bond has risen by 23 basis points.
CONSUMER PRICE INDEX
Wednesday, Apr. 14, 8:30 a.m. EDT
Consumer prices for all goods and services most likely rose by 0.3% during March, according to economists surveyed by Action Economics. Consumer prices climbed 0.3% in February, after a 0.5% jump in January, and a 0.2% rise during December. A 1.7% rise in energy costs was a big driver of consumer prices in February. However, transportation and medical costs also continued to grow at fairly rapid clips.
Yearly inflation would recede to 1.6%, based on the March forecast, after slipping to 1.7% in February. An uptick in yearly headline number is likely over the next couple of months if energy prices remain strong, but a widespread rise in inflation doesn't appear imminent.
Less food and energy, prices probably posted a smaller 0.2% increase, following a 0.2% rise in January and December. Based on the March forecast, yearly core inflation should rise to 1.4%, from 1.2% in February.
Wednesday, Apr. 14, 8:30 a.m. EDT
Inflation-adjusted weekly earnings of production workers over February most likely fell 0.5%, based on the month's 0.2% fall in average weekly earnings and the forecast 0.3% increase in the consumer price index for March. Real earnings in February slipped 0.1%, after improving 0.3% in January. Compared to the same period a year ago, real earnings in February were up 0.5%.
Wednesday, Apr. 14, 8:30 a.m. EDT
The U.S. trade deficit for goods and services during February probably narrowed to $42.6 billion, according to the consensus forecast of economists surveyed by Action Economics. The trade gap for January came in at a surprisingly high $43.1 billion, as imports fell by a lesser amount than exports.
A significant source of the wider trade gap in January came from higher petroleum prices, which helped limit the decline in overall imports. Trade data are measured in value and not volume. Indeed, monthly crude oil imports jumped 3.6% in January and were up 17% from the same time last year. Higher commodity prices have also contributed to the difference. Excluding petroleum products, the February goods deficit would have narrowed to $36.4 billion, following a $37.1 billion gap in January.
MEETINGS OF NOTE
Thursday, Apr. 15, 9:30 a.m. EDT
Federal Reserve Bank of Chicago President Michael Moskow makes opening remarks at a conference on financial access for immigrants in Chicago.
6 p.m. EDT
Federal Reserve Bank of Atlanta President Jack Guynn introduces the Public Company Accounting Oversight Board Chairman William McDonough at the Federal Reserve Bank of Atlanta's "2004 Financial Markets Conference -- Wall Street against the Wall: Transparency and Conflicts of Interest" in Sea Island, Ga.
Thursday, Apr. 15, 8:30 a.m. EDT
First-time claims for jobless benefits for the week ended Apr. 3 probably moved up to 333,000. That's the consensus of economists surveyed by Action Economics. Jobless claims plummeted to 328,000 over the week ended Apr. 3, after slipping to 342,000, in the week ended Mar. 27, from 344,000 in the period ended Mar. 20. The four-week moving average fell to 336,800 for the week ended Apr. 3, from 340,000 in the prior period.
During the week ended Mar. 27, continuing jobless claims also improved, to 3.01 million. In the week ended Mar. 20, the continuing claims increased to 3.05 million over the previous week, from 3.03 million in the week ended Mar. 13.
EMPIRE STATE MANUFACTURING SURVEY
Thursday, Apr. 15, 10 a.m. EDT
The New York Federal Reserve Bank will release its April survey of business conditions for manufacturers in the New York Fed district. According to the Action Economics the headline manufacturing activity index probably strengthened to 28, from 25.3 in March, but stayed below the 42.1 level in February. The new orders index moderated to 23.5, from 34.9 in February, and 34.8 in January.
In addition, more manufacturers are comfortable with the number of workers they have. The overall index slipped to 9.7, from 16.5 in February. However, 70.7% of respondents in March, compared to 61.1% in February, said they kept payrolls at the same level. The increase came from fewer manufacturers saying they had cut jobs as well as a decline in the percentage that reported adding workers.
The March indexes tracking expectations for the next six months were positive. The outlook for general business conditions eased to 53, from 53.9 the month before. The index tracking expectations of capital spending plans strengthened to 34.3, from 32.8 in February. The outlook on new orders was also a little better, even though the region's manufacturers see the growth in shipments slowing a little.
PHILADELPHIA FED SURVEY
Thursday, Apr. 15, 12 p.m. EDT
The Philadelphia Federal Reserve Bank will release its April survey of business conditions for the mid-Atlantic region. Economists surveyed by Action Economics say the index of general business conditions most likely inched back up to 25, after easing to 24.2 in February, from 31.4 in February, and 38.8 in January. While easing, the headline number is still far above its historical average of close to 10.
The new orders index also retreated in March, to 21.9, from 27.8 for the previous month, and 36.5 in January. On a more positive note, respondents reported acceleration in the accumulation of unfilled orders.
Once again, the employment-related indexes were positive. The March measure of the average workweek eased to 17.9, from 23.6 in February, but is higher than the long-term average of -1.5. The index following the number of employees was stable, coming in at 12.3 in March, from 12.5 in February, and an historical average of nearly -1.
Thursday, Apr. 15, 1 p.m. EDT
The National Association of Home Builders will release its April survey results. The monthly report updates housing market conditions by measuring builders' assessments of current sales, buyer traffic through model homes, and expected demand. In March, the index held at 64 for a second straight month, after slipping to 69 in January. Among the components, the index tracking the prospective buyer traffic posted a small rebound, climbing to 48, from 46 in February. The March index of single-family home sales retreated to 69, from 71 the month before. Meanwhile, homebuilders' expectations for sales over the next six months also eased, coming in at 70 in March, from 73 in February.
MEETINGS OF NOTE
Friday, Apr. 16
President George W. Bush hosts British Prime Minister Tony Blair to discuss the situation in Iraq at the White House in Washington, D.C.
8 a.m. EDT
Federal Reserve Board Chairman Alan Greenspan speaks via videolink at the Federal Reserve Bank of Atlanta's "2004 Financial Markets Conference -- Wall Street against the Wall: Transparency and Conflicts of Interest" in Sea Island, Ga.
8 a.m. EDT
Federal Reserve Bank of Richmond President Alfred Broaddus speaks about the U.S. economy at Salisbury University in Cambridge, Md.
9 a.m. EDT
Federal Reserve Board Governor Ben S. Bernanke makes opening remarks on the second day of the Federal Reserve Bank of Chicago's conference on financial access for immigrants in Chicago.
10 a.m. EDT
Federal Reserve Bank of Boston President Cathy Minehan moderates a panel discussion on "Mutual Funds: Temporary Problem or Permanent Morass?" policy discussion at the "2004 at the Federal Reserve Bank of Atlanta's "2004 Financial Markets Conference -- Wall Street against the Wall: Transparency and Conflicts of Interest." in Sea Island, Ga.
NEW RESIDENTIAL CONSTRUCTION
Friday, Apr. 16, 8:30 a.m. EDT
Housing starts probably moved up to an annual rate of 1.91 million in March, say economists queried by Action Economics. In February, housing starts came in at an annual rate of 1.86 million, from 1.93 million in January, and a pace of 2.06 million during December -- the best monthly showing since February of 1984.
The housing market may be in a bit of a tug-of-war over the next couple months. Fierce winter weather in January and early February crimped home sales and construction over that period. Now with the weather warming up, potential homebuyers are expected to be out in full force. However, interest rates may rise further data continue to show the economy expanding at a pretty solid clip.
Friday, Apr. 16, 9:15 a.m. EDT
Industrial output is forecast to have expanded by 0.4% in March say economists surveyed by Action Economics. In February, factory output rose 0.7%, from 0.8% in January. Based on the March forecast, first-quarter industrial production is headed for another big annualized gain of 7.1%, after posting a 5.3% rise in the last quarter of 2003.
The average operating rate for all industries probably climbed to 76.8%, from 76.6% in February, and 76.1% in January. As factories activity keeps expanding, excess capacity should get soaked up at a steady pace. That's because manufacturers have kept a lid on adding new capacity. In February, factory capacity was 1.1% greater than the same period a year ago.
CONSUMER SENTIMENT INDEX
Friday, Apr. 16, 10 a.m. EDT
The University of Michigan's Survey Research Center will report to its clients its initial index reading of consumer sentiment for April. News services will then report the index. Respondents to the Action Economics economic survey expect the first look at consumer sentiment for April inched up to 96. In March, the index finished at 95.8, after slipping to 94.4 in February, from 103.8 in January.
The recent softening in consumer sentiment was blamed on the weak recovery in jobs. Given the March employment report showing a jump of 308,000 new jobs, it will be interesting to see how the index responds this month. Mehring is an economics editor for BusinessWeek in New York