14 May 2001, 10:49 OUTLOOK U.S. data to show inflation risks rising ahead of FOMC meeting
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.
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