Wholesale prices fall
WASHINGTON (AP) – The economy got a double dose of encouraging news Friday as wholesale prices went down and moderating energy costs helped improve the country’s trade deficit. The latest batch of economic reports suggested inflation, for the most part, is under control, and the economy has emerged from a late spring lull and, in the words of Federal Reserve Chairman Alan Greenspan, “regained some traction.”
“We appear to be coming out of the soft patch,” said Oscar Gonzalez, economist at MFC Global Investment Management.
The Labor Department’s Producer Price Index, which measures costs of goods before they reach store shelves, dipped 0.1 percent in August after edging up by 0.1 percent in July. Cheaper gasoline, cars and food helped restrain wholesale prices last month.
Excluding food and energy costs, core prices watched closely by economists also fell 0.1 percent in August, their first decline since February and an indication that most other prices were well-behaved, analysts said.
For the first eight months of the year, overall wholesale prices have increased at an annual rate of 3.8 percent, compared with a 4.6 percent advance for the same period last year. The Commerce Department, meanwhile, reported that U.S. trade deficit shrank to $50.15 billion in July as U.S. exports rose and imports declined for the first time in nearly a year. The decline reflected a drop in the foreign oil bill.
July’s trade deficit was 8.9 percent smaller than the record $55.02 billion trade gap registered in June. U.S. exports rose a solid 3 percent in July from the previous month to $95.86 billion, the second-highest level on record. Imports fell 1.4 percent to $146 billion. Although July’s trade deficit remained the second-highest imbalance ever recorded, the improvement from the previous month raised hopes among economists that the trade gap will become less of a drag on the economy in the July-to-September quarter. President Bush and his Democratic rival, John Kerry, have clashed repeatedly over trade, the health of the economy and availability of jobs as they try to win over voters.
less than two months before Election Day.
Kerry seized on the United States’ $14.9 billion trade deficit with China in July, a record for one month, to argue that Bush hasn’t done enough to protect American workers against unfair trade competition.
“George Bush has taken America in the wrong direction, moving from too little, too late on China to doing nothing at all,” Kerry said.
The administration rejected on Thursday a request from a coalition of businesses and labor unions that it pursue an unfair trade case against China. The coalition contended that Beijing is deliberately undervaluing its currency to give China a big trade advantage when competing with U.S. companies.
The administration says its diplomatic efforts to lobby China to change its currency policy are beginning to show results. Treasury Secretary John Snow, in a visit to Ohio, however, said the administration is unsatisfied with the China’s progress toward overhauling its currency policy but was encouraged that steps are being taken.
From an economic point of view, Friday’s inflation and trade reports were better than analysts had expected. They foresaw a 0.2 percent increase in wholesale prices and a narrowing of the trade gap to about $51.6 billion.
The PPI report, economists said, validates the Federal Reserve’s current approach of gradually raising interest rates.
The Fed meets next on Sept. 21. Economists expect the Fed will boost short-term interest rates for a third time this year by pushing up a key rate to 1.75 percent, from the current 1.50 percent.
Greenspan, in a Capitol Hill appearance this week, said worries about an unwanted advance in inflation appeared to have eased recently despite high oil prices.
In August, energy prices rose a modest 0.2 percent, down considerably from a 2.3 percent jump in July.
A sharp 5 percent drop in gasoline prices last month helped to blunt a rise in prices for home heating oil, residential natural gas, residential electric power and liquefied petroleum gas such as propane.
Car prices fell 1.2 percent in August, the largest drop since April, which reflected more generous discounts and incentives to attract buyers, analysts said. Food prices dropped 0.2 percent in August, following a 1.6 percent decline.
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On the Net:
Producer Price Index: http://www.bls.gov/ppi/home.htm
AP-ES-09-10-04 1550EDT