INFLATION
Worries remain
Inflation has become a one-trick pony, working its influence primarily through a single item, gasoline. That often prompts economists to ignore its effect, on the assumption that big cost increases at the pump are temporary.
Americans, though, aren’t buying it. Consumer surveys show that concerns about inflation and steepening interest rates remain high on their radar screens. And they worry when they hear talk that Federal Reserve Chairman Alan Greenspan will soon need to boost rates, which are at a 40-year low.
That brings us to Friday’s report on the April producer price index, which measures inflation at the wholesale level. Chicago economist William Hummer is looking for a gain of 0.5 percent, on top of the 1 percent jump a month earlier.
“Much of this will be blamed on higher prices for food and energy, but there is, indeed, a bit more inflation creeping into the pipeline,” said Hummer, of Wayne Hummer Investments.
He said that when food and energy prices are excluded, he expects the gain for last month will be only 0.2 percent.
In the meantime, he noted, crude oil prices have begun to recede.
INTEREST RATES
Fed may stand pat
Ahead of the wholesale prices report, policymakers of the Federal Open Market Committee will meet Tuesday.
Hummer said Greenspan and his fellow central bankers “really don’t have anything to do. Their best bet is to lay low.”
Members of the Fed want to make sure the economic recovery is sustainable, he said, and that the rebound doesn’t stem merely from companies rebuilding depleted inventories.
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For now, Hummer said, “Business investment remains feeble, and loan demand is tepid. There are few meaningful signs of inflation, so the Fed has no reason to raise rates.”
PRODUCTIVITY
Output still strong
As government numbers continue to show Americans producing more and more goods in less and less time, some workers are wondering: Does soaring output merely mean an opportunity to run in place?
Wages are hardly blossoming, and companies report only so-so profits. What, then, is happening to the results of all that hard work?
Additional answers are due Tuesday, with first-quarter figures for labor productivity and costs. Economist Lynn Reaser expects it to show a surge of about 7 percent at an annual rate, after a gain of 5 percent the prior three months.
“Typically, productivity falls during a slowdown, but not this time,” said Reaser, of Banc of America Capital Management in St. Louis.
She said output by businesses grew during the first quarter, even though the number of hours worked fell.
“Workers are producing more in less time, partly because companies are reluctant to hire,” Reaser said. “Additionally, a huge investment in high-tech equipment is paying off.”
As for workers, she said their pay overall is going up faster than inflation, so they are realizing meaningful gains from their efforts.
Further, Reaser said, “Businesses can expect the results to show up with healthier profits later this year and early in 2003.”
Other reports due out this week: March wholesale inventories and consumer credit, on Tuesday, and the Chicago Fed Midwest manufacturing index for March, on Thursday.
STOCKS
Malaise lingers
Analysts are at a loss to fully explain the recent loss of bravado by investors in the stock market, but they offer a range of possibilities:
– Corporate profits that meet expectations but offer too little in the way of a positive outlook for the rest of the year.
– Uncertainties over corporate accounting, casting a shadow over any bright news that companies report.
– A world situation, including the war on terror and the standoff in the Middle East, that remains fraught with dangers.
– A dollar that has tumbled from its highs, suggesting less money will be pulled into Wall Street from overseas.
– Rising joblessness, with the percentage of workers out looking for positions at the highest level since 1994.
While no one of these factors could keep the market down for long, their combination has created an investor malaise that is proving difficult to overcome.