Star-Bulletin news services
Economic recovery
no longer in doubt
U.S. retail sales probably rose in May for the seventh time in the last eight months, spurred by job growth, and manufacturers stepped up production, economists say they expect a pair of reports to show next week.
A 1.2 percent increase is forecast for sales, boosted by purchases at automobile dealerships and department stores, according to the median estimate in a Bloomberg News survey before tomorrow's report from the Commerce Department. Industrial production may have risen 0.8 percent for a second month, a survey showed in advance of Federal Reserve statistics Wednesday.
"There's no longer any doubt about the sustainability of the U.S. economic recovery," Richard Berner, chief U.S. economist at Morgan Stanley in New York, said. "Improving labor markets are creating a virtuous cycle, generating more than enough income to sustain consumer spending."
Consumer prices probably accelerated in May because gasoline reached a record high, economists said in advance of tomorrow's report from the Labor Department. Several Federal Reserve policy-makers indicated last week that they're prepared to raise the benchmark interest rate from an almost 46-year low to ensure inflation doesn't accelerate. A broad-based strengthening of prices is bad for the economy because it erodes the purchasing power of the dollar.
Fed Chairman Alan Greenspan said last week that "the outlook is for stable prices." Still, he said, "We have to be prepared should we see events occur that seem inconsistent with the general model" of how the economy works.
Consumer price index
Greenspan might expound on his views about inflation and the economy during his Senate nomination hearing tomorrow. The Fed chairman is scheduled to testify at 10 a.m. Washington time, just after the Labor Department reports on May consumer prices.The consumer price index is forecast to have risen 0.5 percent in May after increasing 0.2 percent in April. The core rate, which excludes energy and food, probably advanced 0.2 percent in May after rising 0.3 percent in April.
Compared with the same month last year, prices paid by consumers for goods and services excluding energy and food were probably 1.8 percent higher in May. The year-over-year increase had dropped in January to 1.1 percent, matching the smallest gain in 43 years.
"We believe the Fed has an inflation comfort zone of about 1.5 percent to 2.5 percent," Ethan Harris, chief U.S. economist at Lehman Brothers Inc. in New York, said.
Central bankers begin a two-day meeting on June 29, and investors expect them to raise the overnight bank lending rate a quarter percentage point from 1 percent, where it's been for the last year.
Retail sales
The economy has been propelled by consumer and corporate purchases. Personal spending will probably increase at a 3.7 percent annual rate in the current quarter after growing at a 3.9 percent pace in the first three months of the year, according to the latest survey of economists by Bloomberg News."We continue to see a strong and sustainable economic recovery across many sectors of the economy that we serve," Frederick Smith, chief executive officer of FedEx Corp., the world's largest overnight package-delivery company, said last week.
Employers have added 947,000 workers to payrolls since March, the biggest three-month increase since 2000, according to the most recent figures from the Labor Department. Hourly earnings on average were 2.2 percent higher in the 12 months that ended in May, the figures show. That compares with a year-over-year increase in February of 1.6 percent, the weakest since 1986.
Rising incomes helped boost sales at retailers such as J.C. Penney Co., Neiman Marcus Group Inc. and Wal-Mart Stores Inc. More jobs and higher wages will help keep consumers spending and the economy expanding, economists said.
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