June 17 (Bloomberg) -- U.S. consumer prices fell for a second month in May, led by a drop in gasoline and other energy costs, economists said they expect the government to report today. The measure of inflation is forecast to decline 0.1 percent following a 0.3 percent decrease in April, a Bloomberg News survey of economists found. That's the first back-to-back drop since a three-month string ended in December 2001. Excluding food and energy, the so-called core rate probably rose 0.1 percent following two straight months of no change. The cost of gasoline and other fuels dropped as Saddam Hussein's regime was deposed in April and it became apparent the war with Iraq would have little effect on oil production. The economy slowed in the months leading up to the war, prompting companies to keep a lid on other prices to help stoke demand.
``There is a lack of willingness among companies to push prices higher for fear of losing market share,'' said Tim Rogers, chief economist at Briefing.com in Boston. The Labor Department is to issue the report in Washington at 8:30 a.m. local time. The forecast is based on the median estimate of 63 economists surveyed by Bloomberg News. The index is the most widely followed gauge of inflation and covers goods and services. Federal Reserve policy makers have suggested they might lower interest rates at next week's policy meeting if there are continued signs that slow growth is pushing the U.S. toward deflation, a general decline in the overall price level.
Industrial Production
Economists are already forecasting a quarter percentage point reduction in the target rate following the end of the Fed's two- day meeting on June 25, according to the median estimate in a separate Bloomberg News survey. The rate is currently at 1.25 percent, the lowest since 1961.
U.S. industrial production may have increased for the first time in four months during May and the percentage of factory capacity in use likely remained at a two-decade low, economists said ahead of a Federal Reserve report to be released at 9:15 a.m. Washington time today. Production at factories, mines and utilities rose 0.1 percent last month after falling 0.5 percent in April, based on the median forecast of 63 economists surveyed by Bloomberg News. Industrial capacity in use may have stayed at 74.4 percent, the lowest since June 1983, based on the forecast. A factory index compiled by the Buffalo branch of the Federal Reserve Bank of New York and released yesterday rose to 26.8 in June, the highest since the gauge's inception in July 2001, from 10.6 the previous month. Readings greater than zero mean that a majority of manufacturers reported an improvement in business.
Housing Starts
The Institute for Supply Management's manufacturing index rose to 49.4 last month from 45.4 in April. A reading below 50 signals that manufacturing was still contracting, just less than in April. New orders and production expanded in May, and backlogs of orders grew for the first time since June of last year. ``We are seeing the start of that pickup that many expected now that the war with Iraq is out of the way,'' said Tim McGee, chief economist at U.S. Trust Corp. in New York. U.S. housing starts may have risen last month after record- low mortgage rates sparked the fastest selling pace this year in April, economists said in advance of a Commerce Department report at 8:30 a.m. Builders may have broken ground on new homes in May at a 1.7 million-unit annual rate, up 4.3 percent from April's 1.63 million, based on the median of 59 estimates in a Bloomberg News survey of economists.
The end of major fighting in Iraq ``has bolstered consumer confidence, a plus for housing,'' said Peter Kretzmer, an economist at Bank of America Corp. in New York. ``More significant has been the decline in mortgage rates to record'' lows, he said. The National Association of Home Builders reported yesterday its housing market index, a gauge of builder sentiment, increased to 62 in June from 57 in May. A gauge of optimism for the next six months rose to 70 from 69. //www.bloomberg.com