Cheap Imports Keep U.S. Inflation at Bay and Push Trade Deficit to Record
U.S. Economy: Cheap Imports Keeping Inflation at Bay (Update1)
(Adds closing markets in 7th, 8th paragraphs.)
Washington, March 18 (Bloomberg) -- Prices paid by U.S.
consumers barely budged in February as a flood of inexpensive
imports helped hold down prices while pushing the trade deficit
to a record a month earlier.
The consumer price index rose 0.1 percent last month,
matching the January and December increases, the Labor Department
said. For the first two months of the year, consumer prices rose
at a 1.1 percent annual rate, matching the lowest inflation rate
in 13 years.
Increased consumer spending, meantime, helped push the U.S.
international trade deficit to $17 billion in January as imports
increased and exports declined for a fourth straight month, the
Commerce Department said. December's trade shortfall was $14.1
billion.
''When consumers buy a lot of imported goods, it's a sign of
economic might,'' said Chris Rupkey, senior financial economist
at Bank of Tokyo-Mitsubishi in New York. Weak overseas economies
also mean lower prices for imported goods. ''It's helping keep
inflation low despite the booming economy,'' he said.
Another report today showed that first-time claims for state
unemployment benefits stayed below 300,000 for a seventh straight
week, rising by 6,000 to 298,000 last week. That's the longest
such stretch since April-May 1974 and a sign jobs remain
plentiful. The four-week average for claims -- a less volatile
measure of employment conditions -- fell to 292,750 last week
from 293,000.
And manufacturing shows signs of a rebound. The Federal
Reserve Bank of Philadelphia's monthly manufacturing survey
showed companies are optimistic about a rebound as orders rise.
The bank's index of future economic activity rose this month to
31.6 -- the highest since last March -- from 31.2 in February.
And the new orders index rose to 27.1 from 18.2 in February.
Bonds, Stocks Gain
Bonds gained and stocks rebounded from two days of declines
on the further evidence that economic growth without inflation
will keep Federal Reserve policy-makers on the sidelines.
The U.S. Treasury's benchmark 30-year bond rose 1/4 point,
pushing down its yield 2 basis points to 5.49 percent. And the
Dow Jones Industrial Average rose 118 points, or 1.20 percent, to
close at 9997.62. Once again, as it did Tuesday, the Dow briefly
crossed the 10,000 mark.
U.S. imports of goods and services rose 2 percent in January
to $93.8 billion, led by consumer goods and computer accessories.
Exports fell 1.4 percent to $76.8 billion, reflecting weaker
demand for cotton, fertilizers and industrial goods. The deficit
with China increased, topping the shortfall with Japan. And the
deficit with Canada, the No. 1 U.S. trading partner, was the
largest since November 1986.
While a wider U.S.-China trade gap could lead to trade
tensions with China, it's good for U.S. consumers, whose spending
in 1998 grew at the fastest clip in 14 years.
Falling Apparel Prices
Prices for apparel fell 0.2 percent last month, the fourth
consecutive decline, the CPI report showed. That's partly because
of cheaper Chinese imports and shoppers are seeking out more
bargains at discount retailers such as Wal-Mart Stores Inc.'s
Sam's Club outlets.
''Consumers have figured out that they're not going to pay a
lot,'' said Rosanne Cahn, chief equity economist at Credit Suisse
First Boston Inc. ''And companies have learned to function
without pricing power.''
In addition, energy prices, which account for almost a tenth
of the consumer price index, were unchanged last month, as fuel
oil prices dropped 1.4 percent. Prices of personal computers fell
2.8 percent, and new and used auto prices fell 0.7 percent.
Some industries reported moderate price increases last
month. Food prices rose 0.1 percent, as did housing costs.
Medical care costs rose 0.2 percent, led by a 0.5 increase in
prescription drug prices.
The only industries that have raised prices successfully in
the past year, Cahn said, enjoy relatively no competition from
imports: drugmakers, cigarette companies, lawyers, doctors,
hospitals and schools and universities.
Companies that have struggled to entice shoppers are using
overseas manufacturing to bring prices down. Nike Inc., the
world's largest maker of shoes, is expected to pass along falling
manufacturing costs to boost U.S. market share, say investors.
Nike ''should be in a good position to recapture the interest of
consumers to make sure these shoes are viewed as the best-
priced,'' said Thomas Buynak, director at Society Asset
Management, which owned 158,522 Nike shares last December.
Cutting Into GDP
A surge in cheap imports isn't entirely welcome. The
widening trade deficit is expected to shave 1.5 percentage points
from U.S. gross domestic product growth in the first quarter,
said Stan Shipley, an economist at Merrill Lynch & Co. Shipley
said he expects GDP to expand at about a 4 percent annual rate
during the first three months of the year, down from the 6.1
percent growth rate of the fourth quarter.
Moreover, import growth increases competition for
manufacturers struggling as exports decline. For goods trade
alone, the January deficit of $22.3 billion was the largest on
record. And if export weakness persists, it could point to
''another lackluster year for manufacturers at best,'' said Kevin
Flanagan, an economist at Morgan Stanley Dean Witter in New York.
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