Inflation has a reserved seat in the front row of economic concerns, even if it doesn’t bother to show up for years at a time.
Take the most popular measure, the consumer price index. The index has shown monthly gains of only 0.1 or 0.2 percent. The Tuesday report for October is expected to be just as contained.
“It is the services sector that is showing any inflation signs
and many economists think it is overstated,” said Brian Wesbury, chief economist at Griffin, Kubik, Stephens & Thompson Inc., a Chicago investment firm.
He noted that through the 12 months ending in September, the CPI was up 2.1 percent while services rose by 2.7 percent and goods prices edged up only 0.5 percent.
“We are getting close to price stability and the real danger is that we may tip over to deflation,” Wesbury said.
TRADE DEFICIT
DOLLAR STILL STRONG
Of all the economic reports coming out this week, the trade deficit on Thursday is the one with “the most potential to cause excitement,” said Susan M. Hering, chief economist for Carr Futures in Chicago.
The gap, which she put at $10.5 billion for September, is expected to continue to widen as Asian countries with weakened economies and devalued currencies push exports and slow now-higher-priced imports. The deficit had grown from $8.3 billion in June to $10 billion in July and $10.4 billion in August.
“We already had a large deficit because the U.S. economy was expanding faster than other countries,” Hering said. “This report will highlight particularly the growing deficit with China and Japan and the strength of the dollar versus the yen.”
But the problem with this and other reports due out “is that they measure what happened before the market meltdown at the end of October, so they’re history,” she said. “November will give more reliable statistics.”
HOUSING STARTS
VOLATILITY A CONSTANT
Economists are more likely to be further off on projecting housing starts than other reports, Hering said, because of the volatility of the sector.
The October report is scheduled to be released on Wednesday and a robust level is expected to continue, but could be off slightly from the 1.5 million annual rate of September despite strong new home sales and lower mortgage rates.
INDUSTRIAL PRODUCTION
THE LAST HURRAH?
American industry has been producing more than consumers have been buying, so Wesbury said the big gains in industrial production (due out Monday) are about to come to an end.
“There was a gain of 54,000 manufacturing jobs last month and production was probably up 0.5 percent which would mean a 5.9 percent gain in 12 months,” he said. “But this should be the last hurrah.”
Inventory buildup and more price cutting are distinct possibilities, Wesbury added.
George Gunset
