Best of the Week
Most Popular
1. US Housing Market House Prices Bull Market Trend Current State - Nadeem_Walayat
2.Gold and Silver End of Week Technical, CoT and Fundamental Status - Gary_Tanashian
3.Stock Market Dow Trend Forecast - April Update - Nadeem_Walayat
4.When Will the Stock Market’s Rally Stop? - Troy_Bombardia
5.Russia and China Intend to Drain the West of Its Gold - MoneyMetals
6.BAIDU (BIDU) - Top 10 Artificial Intelligence Stocks Investing To Profit from AI Mega-trend - Nadeem_Walayat
7.Stop Feeding the Chinese Empire - ‘Belt and Road’ Trojan Horse - Richard_Mills
8.Stock Market US China Trade War Panic! Trend Forecast May 2019 Update - Nadeem_Walayat
9.US China Trade Impasse Threatens US Lithium, Rare Earth Imports - Richard_Mills
10.How to Invest in AI Stocks to Profit from the Machine Intelligence Mega-trend - Nadeem_Walayat
Last 7 days
The Three M's of Hyperinflation : Milosevic, Mugabe, And Maduro - 26th May 19
Global Multi-Market / Asset Charts Review - 26th May 19
An Oil Shock Could Be the Black Swan That Finally Drives Gold Higher - 26th May 19
Brexit Party Forces Theresa May to Resign, Boris Johnson Next Tory Prime Minister? - 26th May 19
IBM - Investing in AI Machine Intelligence Stocks - 25th May 19
Seasonal Dysfunction: Why Generations of Gold and Silver Investors Are Having Such Difficulty - 25th May 19
Employment - The Good and the Bad of Job Automation - 25th May 19
Gold Mining Mid-Tier Stocks Fundamentals - 25th May 19
Buy This Pick-and-Shovel 5G Stock Before It Takes Off - 25th May 19
China Hang Seng Stocks Index Collapses and Commodities - 24th May 19
Costco Corp. (COST): Finding Opportunity in Five Minutes or Less - 24th May 19
How Free Bets Have Impacted the Online Casino Industry - 24th May 19
This Ultimate Formula Will Help You Avoid Dividend Cutting Stocks - 24th May 19
Benefits of a Lottery Online Account - 24th May 19
Technical Analyst: Gold Price Weakness Should Be Short Term - 24th May 19
Silver Price Looking Weaker than Gold - 24th May 19
Nigel Farage's Brexit Party EU Elections Seats Results Forecast - 24th May 19
Powerful Signal from Gold GDX - 24th May 19
Eye Opening Currency Charts – Why Precious Metals Are Falling - 23rd May 19
Netflix Has 175 Days Left to Pull Off a Miracle… or It’s All Over - 23rd May 19
Capitalism Works, Ravenous Capitalism Doesn’t - 23rd May 19
The Euro Is Bidding Its Time: A Reversal at Hand? - 23rd May 19
Gold Demand Rose 7% in Q1 2019. A Launching Pad Higher for Gold? - 23rd May 19
Global Economic Tensions Translate Into Oil Price Volatility - 22nd May 19
The Coming Pension Crisis Is So Big That It’s a Problem for Everyone - 22nd May 19
Crude Oil, Hot Stocks, and Currencies – Markets III - 22nd May 19
The No.1 Energy Stock for 2019 - 22nd May 19
Brexit Party and Lib-Dems Pull Further Away from Labour and Tories in Latest Opinion Polls - 22nd May 19
The Deep State vs Donald Trump - US vs Them Part 2 - 21st May 19
Deep State & Financial Powers Worry about Alternative Currencies - 21st May 19
Gold’s Exciting Boredom - 21st May 19
Trade War Fears Again, Will Stocks Resume the Downtrend? - 21st May 19
Buffett Mistake Costs Him $4.3 Billion This Year—Here’s What Every Investor Can Learn from It - 21st May 19
Dow Stock Market Trend Forecast 2019 May Update - Video - 20th May 19
A Brief History of Financial Entropy - 20th May 19
Gold, MMT, Fiat Money Inflation In France - 20th May 19
WAR - Us versus Them Narrative - 20th May 19
US - Iran War Safe-haven Reasons to Own Gold - 20th May 19
How long does Google have to reference a website? - 20th May 19
Tory Leadership Contest - Will Michael Gove Stab Boris Johnson in the Back Again? - 19th May 19
Stock Market Counter-trend Rally - 19th May 19
Will Stock Market “Sell in May, Go Away” Lead to a Correction… or a Crash? - 19th May 19
US vs. Global Stocks Sector Rotation – What Next? Part 1 - 19th May 19
BrExit Party EarthQuake Could Win it 150 MP's at Next UK General Election! - 18th May 19
Dow Stock Market Trend Forecast 2019 May Update - 18th May 19
US Economy to Die a Traditional Death… Inflation Is Going to Move Higher - 18th May 19
Trump’s Trade War Is Good for These 3 Dividend Stocks - 18th May 19
GDX Gold Mining Stocks Fundamentals Update - 17th May 19
Stock Markets Rally Hard – Is The Volatility Move Over? - 17th May 19
The Use of Technical Analysis for Forex Traders - 17th May 19
Brexit Party Set to Storm EU Parliament Elections - Seats Forecast - 17th May 19
Is the Trade War a Catalyst for Gold? - 17th May 19
This Is a Recession Indicator No One Is Talking About—and It’s Flashing Red - 17th May 19
War! Good or Bad for Stocks? - 17th May 19
How Many Seats Will Brexit Party Win - EU Parliament Elections Forecast 2019 - 16th May 19

Market Oracle FREE Newsletter

U.S. House Prices Analysis and Trend Forecast 2019 to 2021

The Fed’s Focus is on Economic Growth Not Inflation

Economics / Inflation Aug 19, 2011 - 01:17 AM GMT

By: Asha_Bangalore

Economics

Best Financial Markets Analysis ArticleOf the several economic reports published this morning, existing home sales data of July and the August factory activity report of the Philadelphia Fed take precedence over the July Consumer Price Index because inflation is likely to moderate if weak economic conditions persist in the near term.


The Consumer Price Index (CPI) rose 0.5% in July after a 0.2% drop in the previous month. Higher prices for food, gasoline, rent, and clothing accounted for the jump in the CPI. Gasoline prices moved up 4.7% in July and accounted for about half of the increase of the CPI, according to the Bureau of Labor Statistics. The energy price index has risen 19% in the twelve months ended July. Food prices (+0.4%) also rose in July, putting the year-to-year increase at 4.2%. The all-items CPI has increased 3.6% in the last twelve months.

The core CPI, which excludes food and energy, increased 0.2%in July, which works out to a 1.8% increase during the past year. The year-to-year change in the core CPI bottomed out in October 2010 at 0.6% and has climbed steadily each month. Shelter costs posted year-to-year declined in2010 but have reversed this trend in 2011. The 0.3% increase in shelter costs reflects 0.3%gain in the index for rent and owners’ equivalent rent and a 0.9% jump in hotel prices. Clothing prices advanced 1.2% in July and put the year-to-year increase at 3.1%, the largest since 1992. Prices of new cars held stead, while that of used cars rose 0.7%. Airfares edged up 0.1%, tobacco prices rose 0.5%, and the medical care price index climbed 0.2%.

The Fed has indicated in the August 9 policy statement that the low interest rate environment would prevail until mid-2013. Despite this stance, the upward trend of shelter costs will be tracked closely. The weight of shelter costs in the personal consumption expenditure price index (the Fed’s preferred inflation measure) is smaller than the CPI. Nevertheless, an upward trend will be visible in this price measure also. A lower unemployment rate and stronger growth of the economy are the primary goals of the Fed at present. Projections of soft economic growth suggest that inflation readings should remain non-threatening. Inflation expectations for the medium term do not show a worrisome trend (see Chart 3).

The Philadelphia Fed’s factory survey for August presents a severe loss of momentum in the region’s factory sector. The diffusion index of current activity fell to -30.7 in August from a positive reading of 3.2. Indexes tracking new orders (-26.8 vs. +0.1 in July) and shipments (-13.9 vs. +4.3 in July) fell to levels seen during the Great Recession (see Chart 4). The tone of the August report from the Philadelphia Fed suggests significantly weak factory conditions. It is noteworthy that the Philadelphia Fed President Plosser was one of the three dissenters at the August 9 FOMC meeting and would have preferred to leave the current understanding of “extended period” unchanged. The policy statement noted that low rates would prevail at the least until mid-2013 and thus redefined the meaning of extended period which typically stood for a time period covering 2-3 Fed meetings.

Sales of existing homes fell 4.7% to an annual rate of 4.67 million units in July, the third monthly drop in the last four months. Sales of single-family homes declined 4.0% to an annual rate of 4.12 million units. On a regional basis, sales of existing homes advanced in the Northeast (+2.7%) and Midwest (+1.0%) but dropped in the South (-1.6%) and West (-12.6%). Sales of existing homes show a year-to-year gain of 17.1% in July, which is exaggerated because purchases of existing homes had dropped in July 2010 following the expiry of the first-time home buyer program. Essentially, these metrics indicate that sales of existing homes have not posted a meaningful increase from the recession lows, as yet (see Chart 5)

Prices of existing homes continue to show a downward trend. The median price of an existing single-family home ($174,800) dropped 4.5% from a year ago. The seasonally unadjusted inventory of unsold existing single-family homes has risen in July (9.4-month supply vs. 9.2-month supply in June). The large number of unsold homes and the availability of foreclosed homes are both playing a role in keeping prices of existing homes down.

In other related news, initial jobless claims increased 9,000 to 408,000 during the week ended August 13. Continuing claims, which lag initial jobless claims by one week, rose 7,000 to 3.702 million. Jobless claims data continue to send a persistent message of weak conditions in the labor market.

Asha Bangalore — Senior Vice President and Economist

http://www.northerntrust.com

Asha Bangalore is Vice President and Economist at The Northern Trust Company, Chicago. Prior to joining the bank in 1994, she was Consultant to savings and loan institutions and commercial banks at Financial & Economic Strategies Corporation, Chicago.

Copyright © 2011 Asha Bangalore

The opinions expressed herein are those of the author and do not necessarily represent the views of The Northern Trust Company. The Northern Trust Company does not warrant the accuracy or completeness of information contained herein, such information is subject to change and is not intended to influence your investment decisions.


© 2005-2019 http://www.MarketOracle.co.uk - The Market Oracle is a FREE Daily Financial Markets Analysis & Forecasting online publication.


Post Comment

Only logged in users are allowed to post comments. Register/ Log in

6 Critical Money Making Rules