U.S. PPI Fell 0.1% in June; Core Rate Dropped 0.2% (Update2)
By Vincent Del Giudice
U.S. PPI Fell 0.1% in June; Core Rate Dropped 0.2% (Update2)
(Adds closing markets in 5th-6th paragraphs.)
Washington, July 14 (Bloomberg) -- Prices paid to U.S.
factories, farmers and other producers unexpectedly dropped in
June -- the first decline in four months -- reflecting lower
costs for autos and computers. The cost of food and some raw
materials rose.
The producer price index fell 0.1 percent last month, the
Labor Department said. The core rate, which excludes food and
energy, fell 0.2 percent during the month. For June, analysts
expected 0.1 percent increases in both the PPI and the core rate.
The Federal Reserve isn't seeing ''the whites of inflation's
eyes yet, though there may be some pressures building,'' said
Joel Naroff, president of Naroff Economic Advisors in Holland,
Pennsylvania. With oil prices topping $20 a barrel, ''most of he
good news on inflation is behind us, but we haven't seen the bad
news yet,'' Naroff said.
In a separate report today, the Commerce Department said
retail sales rose 0.1 percent in June as a falloff in auto sales
mostly offset rising demand at the nation's department and chain
stores.
Bonds were little changed, to yield 5.91 percent, as concern
about rising prices for raw materials and semi-finished goods
tempered investors' optimism that inflation concerns are abating.
Stocks were mixed. The Dow Jones Industrial Average fell 27
points, or 0.2 percent, to close at 11148.10. the Nasdaq
Composite Index rose 40 points, or 1.4 percent, to close at a
record 2817.99.
Prices of intermediate goods -- milled steel sold to
appliance makers, for instance -- increased 0.4 percent last
month. Intermediate goods prices excluding food and energy rose
0.5 percent. Crude goods prices increased 1.4 percent during
June, reflecting a 3.4 percent rise in petroleum costs. Crude
goods prices excluding food and energy rose 0.5 percent.
First Decline Since February
The decline in the overall PPI was the first since a 0.5
percent drop in February, the Labor Department said. The decline
in the core rate was the first since a 0.2 percent drop in
January. During May, the PPI rose 0.2 percent and core rate
increased 0.1 percent.
For the year to date, the PPI has risen at a 1.5 percent
annual rate, compared with a 1.5 percent decline for the six
months through June 1998. The core rate of the PPI has fallen at
a 0.4 percent rate this year, compared with a 1.4 percent
increase through June 1998.
Producer energy prices fell 0.3 percent during June, the
first decline since February, as both gasoline and home heating
oil costs retreated. Food prices increased 0.4 percent, in part
reflecting the biggest increase in beef costs since October 1985.
Intel Cutting Prices
Computer prices dropped 1.4 percent in June, continuing a
pattern. The last time producer computer prices rose was in
September 1994.
Intel Corp., the leading computer-chipmaker, reduced prices
on its low-cost Celeron microprocessors by as much as 21 percent
as it steps up its push to gain lost business in the market for
cheap personal computers. Intel gave up sales to rivals last
year, when its market share fell to 76 percent from 86 percent in
1997. It's regained some of that lost market in recent months by
slashing prices and offering deep discounts.
In other categories, producer tobacco prices were unchanged
in June. Auto prices decreased 1.3 percent and prescription drug
prices rose 0.2 percent.
On June 30, Fed policy-makers raised the overnight bank
lending rate a quarter point to 5 percent to cool economic growth
and keep inflation from accelerating. It was the Fed's first rate
increase since March 1997.
''They're being pre-emptive,'' said Gary Thayer, chief
economist at A.G. Edwards & Sons in St. Louis. The Fed has
repeatedly expressed concern about the economy's strength and the
effects of that strength on demand and ultimately on prices.
Underscoring the Fed's concern, a recent survey showed more
companies find it easier to raise prices on the goods and
services they produce. Businesses said they expect that situation
to continue through the rest of this year as consumer demand
stays high, according to the survey released last week by the
National Association for Business Economics.
Steel and Oil
Allegheny Teledyne Inc., of Pittsburgh, the world's biggest
specialty-metals maker, said it will raise its stainless steel
prices by about 7 percent because of higher costs for the raw
materials used to make the product. Rival producer J&L Specialty
Steel Inc. said it will match the increase by reducing discounts
to certain customers.
Stainless steel, made with chromium and sometimes nickel, is
used in autos, appliances, surgical tools and other products.
Benchmark nickel prices on the London Metal Exchange have risen
more than 15 percent in the past three months. Today's report
showed prices of intermediate steel mill products rose 1.1
percent in June after declining in the two previous months.
Oil prices, too, have been creeping higher. Crude oil closed
above $20 a barrel yesterday for the first time since November
1997.
An industry report this week showed that strong gasoline
demand led to an unexpectedly large drop in motor fuel
inventories. Demand from gasoline wholesalers, as derived from
American Petroleum Institute figures, rose 5 percent to 9.55
million barrels a day, the second highest level ever, according
to Bloomberg calculations.
Tomorrow, the Labor Department is expected to report the
consumer price index increased 0.1 percent in June after showing
no change during May, analysts said. The CPI core rate probably
increased 0.2 percent last month after rising 0.1 percent during
May, analysts said.
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U.S. June Retail Sales Rise 0.1%; Ex-Autos Rise 0.4% (Update2)
By Noam Neusner
U.S. June Retail Sales Rise 0.1%; Ex-Autos Rise 0.4% (Update2)
(Updates market reaction in 9th-11th paragraphs.)
Washington, July 14 (Bloomberg) -- U.S. retail sales rose at
a slower than expected pace in June, as a decline in auto sales
offset increased purchases of clothing, medicine and building
materials, government figures showed today.
June sales rose 0.1 percent to $243.316 billion after
posting a revised 1.2 percent gain in May, previously reported as
a 1 percent increase. Excluding autos, June sales rose
0.4 percent after rising 0.5 percent in May, the same as
previously reported.
The overall increase was less than the 0.3 percent gain
analysts had expected, due to a 1 percent decline in auto sales.
Still, analysts expressed little concern, saying the drop was
largely the result of discounted prices.
Automakers, enjoying a record year so far, agreed. ''There
are so many positive factors at work in the U.S. economy right
now,'' said Ford Motor Co. Chief Executive Jacques Nasser.
''We're confident vehicle sales will remain strong through the
balance of 1999 and into the year 2000.'' Ford today said second-
quarter earnings rose 4.3 percent, more than expected.
The overall gain in June was the lowest since March. It was
led by gains in all categories except for automotive dealers,
grocery stores and gas stations.
It's not surprising for spending to cool off after several
months of gains, economists said. ''What you're doing is
sustaining a very high level'' of sales, said Ken Mayland, chief
economist at Keycorp in Cleveland, before the report was
released. ''You're due for a breather after that kind of pace.''
Consumer spending is still frenetic, just slower than the
first-quarter's pace. Personal consumption rose 7 percent in the
first-quarter. Economists said today's numbers on retail sales
indicate second-quarter consumption rose about 4 percent.
''So there's a slowdown, but in the broader scheme of
things, it's still pretty strong,'' said Michael Niemira,
economist at Bank of Tokyo-Mitsubishi.
Bonds were little changed on concern that central bankers
might see the need for a further increase in borrowing costs to
slow the economy as a way of keeping prices in check. A separate
report on producer prices contained hints of a possible inflation
risk.
The Treasury's benchmark 30-year bond fell 1/8 point,
pushing up its yield a basis point to 5.91 percent in late
afternoon trading.
Stocks were mixed. The Dow Jones Industrial Average fell 27
points, or 0.2 percent, to close at 11148.10. The Nasdaq
Composite Index rose 40 points, or 1.4 percent, to close at a
record 2817.98.
Details
Purchases of big-ticket durable goods such as autos,
appliances and furniture fell 0.4 percent last month after rising
2.3 percent in May. Sales of non-durable goods, such as clothing,
rose 0.4 percent in June after a 0.5 percent increase in May.
Retail spending is key to the economy's performance since
consumption accounts for two-thirds of the nation's output. In
the first quarter, consumer spending rose at its fastest pace in
11 years, helping companies such as Wal-Mart Stores Inc., the
world's largest retailer.
U.S. retailers have benefited from a combination of rising
wages and low unemployment. Personal income rose 0.4 percent in
May, while the U.S. unemployment rate in June was 4.3 percent,
near 29-year lows. Personal spending in May rose 0.6 percent.
U.S. retail sales at stores open at least a year rose 7.4
percent in June, according to the Bank of Tokyo Mitsubishi Ltd.
The increase was the biggest since March and was paced by 8.4
percent gains at both Federated Department Stores Inc. and May
Department Stores Co., more than double their average monthly
gain the past year.
''It's a good economic environment, and the stock market
being where it is contributes to psychological well-being,'' said
William Welch, president of Oaktree Asset Management Inc., which
holds shares of Staples Inc., Home Depot Inc. and Amazon.com Inc.
Sales rose 9.2 percent at discount chain Kmart Corp., 13 percent
at Gap, and 6.5 percent at Wal-Mart.
Same-store sales are a key gauge of a retailer's business
because they don't include new and closed stores. Sales rose 6.8
percent in May and 4.2 percent in April, said Bank of Tokyo.
''People feel good about their jobs,'' said Rick Evans,
owner of Huntington Beach Chrysler Plymouth in Southern
California. ''That's what gets them to sign on the line to take
on a car payment every month for the next five years.'' |
