Economy watchers await new Fed cut
Bloomberg News Service
WASHINGTON — Prices paid to U.S. producers rose less than expected in May, a sign of tame inflation that gives Federal Reserve policy-makers room to lower interest rates and boost economic growth.
The producer price index rose 0.1 percent last month, restrained by declines in the costs of food, automobiles and computers, the Labor Department said. Wholesale prices rose 0.3 percent in April. Excluding food and energy, prices rose 0.2 percent, matching April's rise.
Separate reports showed that business sales dropped for a second straight month in April and claims for unemployment benefits held last week at close to a nine-year high. Together they underscore weakness in the economy that may lead the Fed to reduce its benchmark interest rate for a sixth time this year.
"There are no inflation worries that stand in the way of the Fed cutting the federal funds rate yet one more time," said Kenneth Mayland, chief economist of Clear View Economics in Pepper Pike, Ohio. Analysts expected a 0.3 percent rise in May producer prices.
Fed officials next meet June 26-27. The central bank's policy-makers cut the overnight bank lending rate to a seven-year low of 4 percent last month to prevent the economy from weakening further.
"I personally think it's a bit too early to anticipate a recovery," Fed Vice Chairman Roger Ferguson told an audience at The Hague yesterday. "The Fed has responded very aggressively and towards the end of this year or the beginning of next year, I expect to see some impact from that."
The economy grew at a 1.4 percent annual rate between October and March, the weakest six months since the second and third quarters of 1991 when the United States was emerging from the last recession.
Sales at U.S. businesses declined 0.5 percent in April after a 0.6 percent decrease, the Commerce Department said. As a result, companies had trouble reducing stockpiles of unsold merchandise.
Inventories at U.S. businesses were unchanged in April. The inventory-sales ratio, a measure of how long goods remain unsold, rose to 1.44 months, the highest since January 1999.
"Unless sales revive with lower interest rates and tax relief, further cuts in production and employment will have to be made," said Steven Wood, chief economist at FinancialOxygen Inc. in Walnut Creek, Calif.
Initial jobless claims fell to 428,000 for the week ended June 9 from 440,000 a week earlier, the Labor Department said. It was the first decrease in five weeks and left claims close to the highest since July 1992.
The four-week moving average for jobless claims, which takes out some of the volatility in the weekly figure, rose to 424,500 last week from 415,500. The average was the highest since August 1992.
The government's report on inflation showed food prices fell 0.4 percent in May after a 0.6 percent increase during April. The costs of eggs, fish, pork and beef decreased during the month, but vegetable and fruit prices rose.
Passenger car prices fell 0.1 percent; light trucks, 1.6 percent.
Energy prices rose 0.2 percent in May, led by higher gasoline, residential electricity and heating oil costs. The cost of liquefied petroleum gas, such as propane, declined.
