Best of the Week
Most Popular
1. Gold vs Cash in a Financial Crisis - Richard_Mills
2.Current Stock Market Rally Similarities To 1999 - Chris_Vermeulen
3.America See You On The Dark Side Of The Moon - Part2 - James_Quinn
4.Stock Market Trend Forecast Outlook for 2020 - Nadeem_Walayat
5.Who Said Stock Market Traders and Investor are Emotional Right Now? - Chris_Vermeulen
6.Gold Upswing and Lessons from Gold Tops - P_Radomski_CFA
7.Economic Tribulation is Coming, and Here is Why - Michael_Pento
8.What to Expect in Our Next Recession/Depression? - Raymond_Matison
9.The Fed Celebrates While Americans Drown in Financial Despair - John_Mauldin
10.Hi-yo Silver Away! - Richard_Mills
Last 7 days
1. GOOGLE (Alphabet) - Primary AI Tech Stock For Investing 2020 - 17th Jan 20
ERY Energy Bear Continues Basing Setup – Breakout Expected Near January 24th - 17th Jan 20
What Expiring Stock and Commodity Market Bubbles Look Like - 17th Jan 20
Platinum Breaks $1000 On Big Rally - What's Next Forecast - 17th Jan 20
Precious Metals Set to Keep Powering Ahead - 17th Jan 20
Stock Market and the US Presidential Election Cycle  - 16th Jan 20
Shifting Undercurrents In The US Stock Market - 16th Jan 20
America 2020 – YEAR OF LIVING DANGEROUSLY (PART TWO) - 16th Jan 20
Yes, China Is a Currency Manipulator – And the U.S. Banking System Is a Metals Manipulator - 16th Jan 20
MICROSOFT Stock Investing in AI Machine Intelligence Mega-trend 2020 and Beyond - 15th Jan 20
Silver Traders Big Trend Analysis – Part II - 15th Jan 20
Silver Short-Term Pullback Before Acceleration Higher - 15th Jan 20
Gold Overall Outlook Is 'Strongly Bullish' - 15th Jan 20
AMD is Killing Intel - Best CPU's For 2020! Ryzen 3900x, 3950x, 3960x Budget, to High End Systems - 15th Jan 20
The Importance Of Keeping Invoices Up To Date - 15th Jan 20
Stock Market Elliott Wave Analysis 2020 - 14th Jan 20
Walmart Has Made a Genius Move to Beat Amazon - 14th Jan 20
Deep State 2020 – A Year Of Living Dangerously! - 14th Jan 20
The End of College Is Near - 14th Jan 20
AI Stocks Investing 2020 to Profit from the Machine Intelligence Mega-trend - Video - 14th Jan 20
Stock Market Final Thrust - 14th Jan 20
British Pound GBP Trend Forecast Review - 13th Jan 20
Trumpism Stock Market and the crisis in American social equality - 13th Jan 20
Silver Investors Big Trend Analysis for – Part I - 13th Jan 20
Craig Hemke Gold & Silver 2020 Prediction, Slams Biased Gold Naysayers - 13th Jan 20
AMAZON Stock Investing in AI Machine Intelligence Mega-trend 2020 and Beyond - 11th Jan 20
Gold Price Reacting to Global Flash Points - 11th Jan 20
Land Rover Discovery Sport 2020 - What You Need to Know Before Buying - 11th Jan 20
Gold Buying Precarious - 11th Jan 20
The Crazy Stock Market Train to Bull Eternity - 11th Jan 20
Gold Gann Angle Update - 10th Jan 20
Gold In Rally Mode Suggests Commitment of Traders (COT) Data - 10th Jan 20
Disney Could Mount Its Biggest Rally in 2020 - 10th Jan 20
How on Earth Can Gold Decline During the U.S. – Iran Crisis? - 10th Jan 20
Getting Your HR Budget in Line - 10th Jan 20
The Fed Protects Gamblers at the Expense of the Economy - 9th Jan 20
Last Chance to Get Microsoft Windows 10 for FREE! - 9th Jan 20
The Stock Market is the Opiate of the Masses - 9th Jan 20
Is The Energy Sector Setting Up Another Great Entry? - 9th Jan 20
The Fed Is Creating a Monster Bubble - 9th Jan 20
If History Repeats, Video Game Stocks Could Soar 600%+ - 9th Jan 20
What to Know Before Buying a Land Rover Discovery Sport in 2020 - 8th Jan 20
Stock Market Forecast 2020 Trend Analysis - 8th Jan 20
Gold Price at Resistance - 8th Jan 20
The Fed Has Quietly Started QE4 - 8th Jan 20
NASDAQ Set to Fall 1000pts Early 2020, and What it Means for Gold Price - 8th Jan 20
Gold 2020 - Financial Analysts and Major Financial Institutions Outlook - 8th Jan 20
Stock Market Trend Review - 8th Jan 20

Market Oracle FREE Newsletter

Nadeem Walayat Financial Markets Analysiis and Trend Forecasts

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