Econ--John Berry's articles, The Washington Post...
washingtonpost.com
washingtonpost.com
------------------------------
Full text, edited for ease of reading.:
>>> Basis Points
By John M. Berry
Sunday, July 16, 2000; Page H02
Core producer prices for finished goods fell by 0.1 percent last month, but that wasn't enough to keep the bond market happy on Friday. Yields rose across the curve because retail sales rose 0.5 percent last month and increased rather than declined in May.
The upward revision in particular caused some analysts to conclude U.S. economic growth may not be slowing as fast as they had thought--and that raised the prospect that maybe Federal Reserve officials would decide to increase their target for overnight rates next month.
Other analysts remained convinced that growth is on a slower track. Fed Chairman Alan Greenspan may give some clues about what he and his colleagues have in mind when he testifies Thursday before the Senate Banking Committee.
Tomorrow, Treasury will sell $8.5 billion in three-month bills and $7.5 billion in six-month bills, which yielded 6.15 percent and 6.27 percent, respectively, in when-issued trading Friday. <<<
...........................................
>>> Economy Seems Headed for a Soft Landing
By John M. Berry
Washington Post Staff Writer
Saturday , July 15, 2000 ; E01
The once highflying U.S. economy appears to be coming in for a soft landing.
That's the conclusion of a growing number of analysts who are convinced the Federal Reserve has administered the right dosage of interest rate increases to slow economic growth just enough to keep inflation at bay while averting any danger of a recession.
Economic reports released yesterday--covering retail sales, producer prices and industrial production--provided more evidence that growth has slowed to a pace that many Fed officials believe can be sustained without an acceleration in inflation.
"U.S. economic performance is shifting from truly spectacular to merely good," said Bruce Steinberg, chief economist at Merrill Lynch & Co. in New York. "After growing at a 5 percent pace during the past year and more than 4 percent during the past five years, [the economy] probably grew at a 3.5 percent rate in the second quarter" and likely will do so through the end of next year.
Steinberg predicted that level of growth would keep the jobless rate just about where it is now, 4 percent, but be slow enough to keep the nation's underlying inflation rate, which has inched up in recent months, from rising further. If that turns out to be the case, then the Fed--which has raised short-term interest rates six times in the past 13 months for a cumulative increase of 1.75 percentage points--might not have to move again.
As the evidence of slowing growth has mounted in recent weeks, Fed officials themselves are becoming more confident that they are achieving a much-desired soft landing, with inflation kept mostly under wraps and no significant rise in unemployment or, even worse, an outright economic slump. They last accomplished the feat in 1995 after the economy roared ahead in 1994.
Investors and most analysts now think Fed officials would not raise its interest rate target if a policymaking session were held today. However, the next such meeting is not until Aug. 22, and if marked evidence of stronger growth becomes available between now and then, that assessment could change. Fed Chairman Alan Greenspan is scheduled to testify on monetary policy and the state of the economy at a Capitol Hill hearing on Thursday.
In fact, there are skeptics among the analysts--but not, however, because they are sure that forecasts such as Steinberg's are wrong. Rather, they think the slowdown in growth is still so recent that they are not convinced there won't be a rebound in the second half of this year, just as there were after springtime breathers in both 1998 and 1999.
"There may well be a rebound" in growth, said Bill Dudley, chief economist at Goldman Sachs & Co. in New York, adding that it will take at least a couple more months of subdued numbers to convince him that the economy won't heat up again.
"If the meeting were held today, we agree the Fed would do nothing," Dudley said. "We expect that in the next five weeks the data will change. I don't know whether we are stubborn and stupid or stubborn and brave."
Allen Sinai, chief global economist at Primark Decision Economics Inc., cited four reasons for believing that any rebound in growth in the coming months will be limited compared to the accelerations of the past two years:
Interest rates, including those on home mortgages, are higher.
The big jump in energy prices, particularly those for gasoline, is leaving consumers with less money to spend on other things.
The stock market, the source of a huge increase in household wealth that has helped power consumer spending, has been more or less moving sideways for many months.
The highly publicized problems of many Internet-related companies have created a new sense of uncertainty about prospects for that part of the economy.
Sinai is among those convinced the economy has moved to a new, slower but still substantial growth path and is likely to stay there.
Analysts said the numbers released yesterday were generally consistent with the slower growth scenario--but as is often the case with economic data, not unambiguously so.
The Commerce Department said that retail sales rose 0.5 percent last month but only 0.1 percent if automobiles and gasoline are excluded. Sales of the latter increased largely because of a big jump in prices at the pump. However, the retail sales figure for May, originally reported as a 0.3 percent decline, was revised significantly upward to show a 0.3 percent increase.
"It is clear that retail spending slowed in the second quarter from its absolutely astonishing pace of the first quarter, but these data suggest the slowdown was not as severe as previously perceived," said economist Joe Liro at Stone & McCarthy Research Associates, a financial markets research firm.
Meanwhile, on the inflation front, the Labor Department said that producer prices for finished goods increased a large 0.6 percent last month, but the rise was due almost entirely to higher prices for gasoline and other energy products. Excluding energy and food prices, the so-called core producer price index (PPI) fell 0.1 percent. Prices of new motor vehicles declined 0.5 percent after rising in the two previous months.
Energy prices included in the PPI for finished goods--which measures changes in prices charged by producers when an item is first sold after it is completed--rose 5.1 percent. They were 23.4 percent higher than in June 1999.
Yet another report, from the Fed, showed industrial production increased 0.2 percent last month, with the rise limited partly by a decline in utility output as cooler than normal weather reduced demand for electricity for air conditioning.
Ian Shepherdson, chief U.S. economist for High Frequency Economics in Valhalla, N.Y., said the latest figures for production by the nation's factories, mines and utilities suggest "the growth rate [for industrial production] might be starting to slow, but from a very fast pace. These data are consistent with a soft landing."
Economist Jerry J. Jasinowski, president of the National Association of Manufacturers, read the latest production data as solid indicators of slowing growth.
"Industrial activity was quite strong in April and May but decelerated in June, indicating that there is not danger that the economy is overheating," Jasinowski said.
Mickey Levy, chief economist at Bank of America in New York, said that a soft landing has become an even greater probability because of the prompt way businesses have responded to signs of slower growth, particularly in the consumer area.
By quickly adjusting their levels of production and employment, businesses should limit any unintended build-up of unsold goods, Levy said. In past business cycles, he said, that kind of build-up forced firms to cut production sharply to get rid of excess inventories, causing "more prolonged periods of slowdown."
"Further, reducing hours worked right along with output allows labor productivity gains to be sustained," Levy said, allowing firms to keep their costs under control and reducing pressure to raise prices.
© 2000 The Washington Post Company <<< |
