WASHINGTON (AFX) - U.S. economic indicators to be released this week will show consumer inflation risks crept back into the economy during April, however, the week will be overshadowed by tomorrow's meeting of the Federal Open Market Committee (FOMC), economists said.
They said that overall they expect the week's data to reflect a continuation of recent trends: manufacturing will remain weak with no signs of a rebound soon, the April consumer price index will show inflation growing at a faster pace than the Federal Reserve desires, and the trade sector will continue to highlight slowing demand overseas.
A majority of economists expect the FOMC to announce a 50 basis points reduction in the key fed funds rate tomorrow, which would trim the rate to 4.00 pct, although some economists have scaled back their forecasts to a 25 basis points cut due to stronger-than-expected April retail sales.
If the FOMC does decide to cut rates by 50 basis points tomorrow it will mark their fifth such consecutive move so far this year. The markets will be looking for the Fed to implement further easing in interest rates to try and offset some of the current economic weakness, said Mike Carey, a U.S. economist at Credit Lyonnais in New York.
Credit Lyonnais expects the FOMC to implement a 50 basis points cut in the fed funds rate.
Rick McDonald, a U.S. economist at Standard & Poors MMS in Palo Alto, California, said: "Inflation statistics certainly aren't showing any signs of moderating. It looks like inflation risk is creeping back into the market place."
Economists polled by AFX News forecast that headline April CPI rose by 0.4 pct after headline CPI rose by 0.1 pct in March. The core CPI rate, which excludes volatile food and energy prices, is expected to have risen by 0.2 pct after the core rate increased by 0.2 pct in March.
"The inflation risk, if we're having problems now, could only get worse as we go forward from here," said McDonald adding that "we think the job market is going to continue to deteriorate, we think the unemployment rate is going to hit 5.0 percent over the next couple of months."
However, economists at BMO Nesbitt Burns said in a note to clients that:"We continue to firmly believe that U.S. inflation pressures will recede markedly as the economy continues to slow." April core PPI was marginally higher than expected, up 0.2 pct, but the "run up in labour costs is much more likely to take a swipe out of profits than lead to a broad-based rise in inflation," said the Nesbitt Burns economists.
They also expect the FOMC to initiate a 50 basis points reduction in rates Tuesday.
Economists will be paying close attention to the impact of energy prices on April's CPI data, particularly gasoline and power, which are experiencing increased demands in the build up to the summer driving season and as air conditioning demands rise with summer temperatures. Investors will also be awaiting first quarter results from leading retailers during the week: Wal Mart Stores Inc, JC Penney Co Inc, Home Depot Co and K-Mart Corp are all due to report.
In an interview with AFX News Friday, Home Depot president and chief executive Robert Nardelli said: "Now it's a time where every sale is precious."
Following are the consensus forecasts of Wall Street economists for data to be this week.
MARCH BUSINESS INVENTORIES, Monday (8.30 am): Economists expect business inventories to have declined by 0.2 pct in March after inventories fell unexpectedly by 0.2 pct in February, posting their first drop since Dec 1998, and marking their largest fall since March 1996.
The Commerce Department forecasts that inventories, excluding autos, will rise in March.
Business sales dropped 0.3 pct in February.
APRIL INDUSTRIAL OUTPUT, Monday (9.15 am): April industrial output is expected to fall 0.2 pct after output increased by 0.4 pct in March, its first rise since September.
Capacity in use is forecast to post a marginal decline to 79.0 pct compared with 79.4 pct capacity in use for March.
APRIL CONSUMER PRICE INDEX, Wednesday (8.30 am): Economists said headline April CPI will rise by 0.4 pct after headline CPI increased by 0.1 pct in March.
The core CPI rate, which excludes volatile food and energy prices, is seen rising 0.2 pct after the core rate increased by 0.2 pct in March.
APRIL HOUSING STARTS, Wednesday (8.30 am): Forecasts indicated that housing starts in April will total 1.589 mln units, or a fall of 1.5 pct compared with March housing starts of 1.613 mln units.
WEEKLY JOBLESS CLAIMS, Thursday (8.30 am): Weekly jobless claims are expected to rise by 10,000 to 394,000 for the week ending May 12 after claims fell by a larger than expected 41,000 to 384,000 in the week ending May 5.
APRIL LEADING INDICATORS, Thursday (10.00 am): The Conference Board is expected to report that its index of leading indicators rose by 0.1 pct in April after the index fell 0.3 pct in March to 108.5.
MARCH TRADE DEFICIT, Friday (8.30 am): Economists expect that the March trade deficit will widen to 29.7 bln usd compared with 27.0 bln usd in February.
APRIL FEDERAL BUDGET, Friday (2.00 pm): The federal budget for April is seen posting a surplus of 179.25 bln usd, following the April deadline for federal tax returns, compared with a surplus of 159.50 bln for April 2000.
The government posted a wider-than-expected budget deficit of 50.66 bln usd in March, compared with a deficit of 35.38 bln in the same month the previous year.
The Congressional Budget Office projects a surplus of 281 bln usd for the fiscal year to Sept 2001, compared with a 237 bln surplus last year.
However, some economists are questioning whether the Treasury will continue to receive strong revenues given the weak economy.