Data points to some stagflation in US economy

Data points to some stagflation in US economy 

Home-building slows Producer prices rise Factory output drops

 

NEW YORK – THE United States economy may be suffering from its first bout of stagflation since the start of this decade, reports on housing, prices and manufacturing have indicated.

Builders broke ground on 975,000 homes last month – the least in 17 years – and construction permits fell, the government said on Tuesday.

 

Meanwhile, the Labour Department said producer prices jumped 1.4 per cent, more than what economists forecast.

 

A further report from the US Federal Reserve showed industrial production unexpectedly dropped 0.2 per cent.

 

‘The latest round of commodity-price pressure is adding to both inflation and weak growth,’ said Mr Ethan Harris, the chief US economist at Lehman Brothers. ‘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,’ Mr William Poole, a former president of the St Louis Fed, said in an interview on Tuesday. ‘I don’t think you can interpret what’s happening with energy as a temporary shock.’

 

‘Industrial production is down – that’s the stag part – and prices are up – that’s the inflation part,’ said Mr Neal Soss, the chief economist at Credit Suisse. Compared with the 1970s, though, ‘it’s not likely that inflation will get as out of control when wages do not respond’.

 

Programmes to stem US foreclosures have been largely ineffective, and Congress will not be able to act fast enough to prevent a new wave of defaults in the third quarter, mortgage industry executives said at a conference on Tuesday.

 

‘Current industry and government programmes really have had no material effect on slowing’ default rates, said Mr Rick Sharga, a vice-president at RealtyTrac. ‘I think the volumes have overwhelmed the system.’

 

About 2,000 families in the US are losing their homes to foreclosure each day. That number is likely to grow, according to Mr Sharga.

 

BLOOMBERG NEWS

 

Source: Straits Times

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