Deller's two cents: well, at least the economy is not heading down, basically flat with very modest upticks.
Economic Week in Review: September 17, 2010
More tortoise than hare
Much of the economic news this week-especially industrial production-pointed to continued slow growth in the U.S. economy. Prices remain in check. For the week ended September 17, the S&P 500 Index rose 1.5% to 1,126 (for a year-to-date total return-including price change plus dividends-of about 2.4%). The yield of the 10-year U.S. Treasury note fell 6 basis points to 2.75% (for a year-to-date drop of 110 basis points).
Retail sales tick up
Retail sales increased 0.4% in August (however, July's figure was revised slightly lower). Back-to-school promotions, temporary sales tax "holidays," and higher gasoline purchases helped drive the overall increase and offset lower sales of motor vehicles and parts. Compared with year-ago levels, August sales were 3.6% higher-a slower pace than July's 5.4% growth. The "cash for clunkers" program that ended in August 2009 boosted year-ago auto sales, making this year's comparison more challenging.
Wholesale and retail prices in check
The Producer Price Index (PPI) increased 0.4% in August, fueled by higher gasoline prices, up 7.5%. Overall, the energy component of the finished goods price index rose 2.2%, its first monthly increase since March. Food prices fell modestly. Excluding food and energy prices, which tend to be more volatile, the "core" PPI edged up 0.1%. Compared with year-ago levels, the PPI advanced 3.1% and core PPI rose 1.3%.
At the consumer level, prices rose 0.3% in August, primarily as a result of higher food and energy costs-especially for gasoline. Excluding those components, the core Consumer Price Index was flat, after having risen in the previous three months. Compared with August 2009, core prices rose 0.9%, which is below the informal inflation target used by the Federal Reserve.
Vanguard economist Roger Aliaga-Díaz noted that "core price inflation at these levels is yet another indication of the slow recovery ahead of us. Most likely, core CPI numbers will not trend up until we start seeing meaningful improvements in jobs, consumer spending, and business capital spending."
Businesses rebuilding inventories
Total U.S. business inventories rose a better-than-expected 1.0% in July. Wholesale inventories notched the highest growth rate, 1.3%, followed by manufacturing inventories at 1.0% and retail inventories at 0.7%. Auto and parts inventories lifted the retail segment, which otherwise would have been essentially flat. Year-over-year growth in total inventories was 2.4%. Still, with high unemployment limiting consumer demand, some analysts are cautious about the potential for inventory build to drive economic growth later this year. On the sales front, total sales increased 0.7% in July from June, with retail sales growth lagging manufacturers and wholesalers.
Slower growth in industrial production
U.S. industrial production overall grew 0.2% in August compared with 0.6% growth in July (revised from the Federal Reserve's 1.0% initial estimate). Three major industry groups make up the total: Manufacturing output grew 0.2% and mining rose 1.2%, but utility output fell 1.5%. Much of the slowing growth in manufacturing resulted from lower production of motor vehicles and parts, which fell 5.0% in August after a robust 9.5% gain in July. (July's advance resulted in part from fewer-than-normal summer plant shutdowns.)
The economic week ahead
Several economic releases are scheduled next week, including new residential construction and the Federal Open Market Committee's decision on interest rates on Tuesday, existing-home sales and The Conference Board's leading economic indicators on Thursday, and new-home sales and durable-goods orders on Friday.
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Steven C. Deller
Professor and Community Development Economist Department of Agricultural and Applied Economics
515 Taylor Hall --- 427 Lorch Street
University of Wisconsin-Madison/Extension Madison, WI 53706
608-263-6251
"I started out with nothing and I have most of it left."
Seasick Steve
