U.S. Housing Slumps, Producer Prices Rise, Sending Signals of Stagflation

[marmar]

from Bloomberg:



U.S. Economy: Housing, Prices, Output Point to Some Stagflation

By Courtney Schlisserman and Shobhana Chandra

June 17 (Bloomberg) -- The U.S. economy may be suffering from its first bout of stagflation since the start of this decade, reports on housing, prices and manufacturing indicated.

Builders broke ground on 975,000 homes at an annual pace in May, the least in 17 years, and construction permits fell, the Commerce Department reported in Washington. Meanwhile, the Labor Department said producer prices jumped 1.4 percent, more than economists forecast. A further report from the Federal Reserve showed industrial production unexpectedly dropped 0.2 percent.

``The latest round of commodity-price pressure is adding to both inflation and weak growth,'' said Ethan Harris, chief U.S. economist at Lehman Brothers Holdings Inc. in New York. ``It's a pretty negative cocktail for the economy and financial markets.''

The reports underscore the Fed's dilemma as officials try to prepare investors for an interest-rate increase. Too strong a crackdown on inflation may delay an economic rebound, while waiting too long risks a price outbreak that may need even higher borrowing costs to tame.

``We should be moving sooner rather than later,'' William Poole, a former president of the St. Louis Fed, said in an interview today with Bloomberg Television in New York. ``I don't think you can interpret what's happening with energy as a temporary shock.''

Treasuries rose after the figures, while the dollar was little changed. Benchmark 10-year note yields dropped to 4.24 percent at 10:47 a.m. in New York, from 4.27 percent late yesterday. Stocks were little changed.

`The Stag Part'

``Industrial production is down, that's the stag part, and prices are up, that's the inflation part,'' said Neal Soss, chief economist at Credit Suisse Holdings Inc. in New York. Compared with the 1970s, though, ``it's not likely that inflation will get as out of control when wages do not respond.''

The producer-price index jump exceeded the 1 percent forecast among economists surveyed by Bloomberg News. It was the biggest increase since November. The Labor Department's figures also showed that prices rose 0.2 percent excluding food and energy, a measure that matched economists' predictions. Production was expected to increase 0.1 percent. .....(more)

The complete piece is at: http://www.bloomberg.com/apps/news?pid=20601087&sid=a.kPGzU8jTrE&refer=home

[DJ13]

1. ``it's not likely that inflation will get as out of control when wages do not respond.''

Rising wages in the 70's was the only form of relief the average consumer had, which kept the economy from collapsing.

Remove wage increases from the stagflation scenario and an economic collapse might be inevitable.

[CanonRay]

2. No, no. We musn't let wages get out of control!

Everything else can skyrocket, but let's please keep a lid on those damn wages!