Deller's two cents: Again, people (consumers and businesses) are in a "wait and see" mode. Waiting on what? I think its if the debt ceiling fiasco we saw with Congress is repeated with Obama's jobs plan. We can debate if Obama's plan goes far enough, but if its turned into a political football (i.e., another fiasco) there will be a huge vote of no confidence and we are more than likely to head back into recession. Its a shame because businesses and banks are sitting on huge volumes of cash that could be used to kick start the economy. Is the spike in inflation a cause for concern? Remember, we tend to think it takes movement in the same direction for three periods in a row to create a trend.
Economic Week in Review: Economic uncertainty continues to weigh on consumers
September 16, 2011
Consumers grew more cautious in August amid wild stock market swings, zero job growth, and heightened concerns the economy had weakened. While business inventories and industrial production climbed, retail sales were flat as consumer prices rose higher than expected. For the week ended September 16, the S&P 500 Index rose 5.4% to 1,216 (for a year-to-date total return-including price change plus dividends-of about -1.9%). The yield on the 10-year U.S. Treasury note rose 15 basis points to 2.08% (for a year-to-date decrease of 122 basis points).
Consumer prices jump sharply
The Consumer Price Index (CPI) rose 0.4% in August, much more than expected, led by increases in gasoline and food prices. Less food and energy, core inflation surpassed its year-ago rate by nearly 2.0%-the upper boundary of the Federal Reserve's target inflation rate-as vehicle and apparel prices continued to rise.
"There aren't many elements to support these upper-range core CPI readings going forward," Vanguard senior economist Roger Aliaga-Díaz said. "There's no evidence of monetary roots to this inflation reading, as banks continue to build up cash reserves and lending remains stagnant. Thus, the Fed may not feel constrained to act based on this inflation measure."
Meanwhile, prices for finished goods in August were unchanged. Analysts had been predicting a significant decline. Prices for finished energy goods dropped 1.0%, the third consecutive monthly decline. Excluding food and energy, core prices for finished goods rose 0.1%. Producer price inflation for service industries also gained slightly.
"There's no evidence of production cost pressures, either," Mr. Aliaga-Díaz continued, "as producer price inflation and import price inflation remain moderate. With slower global economic growth ahead, we may well see core inflation gradually receding."
Inventories and production continue their upward climb
Business inventories grew for the 19th straight month in July, although the gain was less than expected. Now that the Japan supply-chain disruptions have faded, analysts had been anticipating a significant rise in auto inventories rather than the 0.4% increase reported.
Industrial production rose 0.2% in August-its fourth consecutive monthly gain. Combined with a solid 0.9% July increase, average industrial production for both months was 4.6% (annualized) above the second-quarter average. Mining output rose a sharp 1.2%, its sixth consecutive monthly increase and the sector's highest output since 1998. Manufacturing also continued to rise, led by continued growth in automobile production. Overall industrial production strength was offset by weakness in the utility sector, which fell 3% in August, reversing its 2.8% July increase.
Retail sales fall flat in August
Consumers apparently hunkered down during August as retail sales were unchanged. Miscellaneous and clothing retail sales dropped most, declining 2.2% and 0.7%, respectively. Gasoline sales rose, although by much less than they had in July. Meanwhile, sporting goods stores saw the biggest advance-a 2.4% increase.
The economic week ahead
House building and sales reports are set for release next week: new residential construction on Tuesday and existing-home sales on Wednesday. The Federal Open Market Committee's monetary policy report will also appear Wednesday, and leading economic indicators are scheduled for Thursday.
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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 still have most of it left."
Seasick Steve
