Deller's two cents: The economy is in a "soft patch", a "stall" is probably too strong of a word, "slow down" would imply it has speed up in the first place. But why can't the recovery get any traction? Uncertainty over what is going on. Very few of today's business decision makers experienced anything close to the recent "Great Recession" (those that lived through the late 1970s and early 1980s either forgot or are being discounted). I am starting to think all the political rhetoric is not helping: all the political grandstanding on the deficit, taxes and spending is adding fuel to the fire. The "uncertainty" is can our elected officials get beyond political grandstanding and actually govern.
Economic Week in Review: Prices drop, but economy's soft patch continues
July 15, 2011
Producer and consumer prices both fell substantially in June while sales output and inventory reports continue to point to an economic soft patch. For the week ended July 15, the S&P 500 Index declined 2.1% to 1,316.14 (for a year-to-date total return-including price change plus dividends-of about 5.7%). The yield on the 10-year U.S. Treasury note fell 9 basis points to 2.94% (for a year-to-date decrease of 36 basis points).
Prices plummet for the first time in a year
Producer prices fell 0.4% in June, their steepest decline since February 2010, as energy prices eased. Prior to June, overall prices had risen for 12 straight months. Residential electric power costs declined a record 2%, while prices for gasoline, which had been rising partly because of turmoil in Arab oil-producing countries, slid 4.7%.
The Consumer Price Index (CPI) also fell in June, its first decline in a year. Again, falling energy prices were a key factor. Although core CPI (excluding food and energy) actually rose 0.3% for the second consecutive month, this is likely a result of lingering Japanese supply chain disruptions. "Hopefully, this CPI reading will bring relief to many investors concerned with the prospect of rising inflation," said Vanguard economist Roger Aliaga-Díaz. "In fact, even with this increase in the core CPI, annual inflation is still well below the Fed's implicit target."
Inventories at highest level in nearly 3 years
U.S. business inventories rose 1% to $1.51 trillion in May, after rising by an upwardly revised 1% in April. This slightly topped the 0.7% increase that analysts had expected. Inventories are at their highest level since October 2008 and 11.6% higher than a year ago. Wholesale inventories alone are up 15.5% over last year's level. The inventory buildup reflected the soft economy.
Retail sales rise and industrial production weakens
U.S. retail sales increased 0.1% in June, higher than expected and reversing May's similar decline. While department store, building supply store, and apparel sales all rose, sales figures from furniture, sporting goods, and hobby stores showed the biggest declines.
Industrial production in June increased less than expected, mainly because of a slowdown in auto production. Revised figures from April and May show that production actually fell 0.1% in each of those months.
Trade deficit rises sharply; higher oil prices a factor
The trade deficit widened sharply in May as imports rose and exports fell. The $50.2 billion deficit was the highest since October 2008 and well above the analysts' estimates. The reduction in exports reflected lower sales of industrial supplies and materials; consumer goods; and foods, feeds, and beverages. The higher imports reflected an increase in purchases of industrial supplies and materials; capital goods; and automotive vehicles, parts, and engines.
The economic week ahead
Two real estate reports are set for release: new-home sales on Tuesday and existing-home sales on Wednesday. The June report on leading economic indicators is scheduled for Thursday.
--
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 still have most of it left."
Seasick Steve
