Sharp Drop in Food Prices Offsets Higher Energy Costs

A WALL STREET JOURNAL ONLINE NEWS ROUNDUP
August 13, 2004 10:06 a.m.

Wholesale prices in the U.S. rose less than expected in July as high energy costs were offset by a sharp drop in food prices.

Meanwhile, the U.S. trade gap hit another record in June as exports slipped and the nation's energy-import bill rose amid high oil prices. The trade performance is expected to offset any boost to gross domestic product for the second quarter coming from strong retail-sales and inventories results. A third report showed consumer confidence slipped in August.

The producer-price index for finished goods climbed 0.1% last month, after a 0.3% slide in June, the Labor Department reported Friday. Aside from food and energy prices, which tend to be volatile, gains in producer prices actually moderated: The core index, which excludes those categories, showed a growth rate of 0.1%, down from a 0.2% in June.

Economists had expected increases of 0.2% and 0.1%, in overall and core prices, respectively, according to a survey by Dow Jones Newswires and CNBC. Economists say the PPI, which reflects prices paid by factories, mines and utilities, can foreshadow changes in consumer prices about six months or so down the road.

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A separate report showed the trade gap widened more than expected in June to a record $55.82 billion, according to the Commerce Department, as exports slipped and energy import volumes rose despite the high price of oil. The deficit was $46.88 billion in May, up from an initial estimate of $45.95 billion. Economists had expected July reading to show a $47.5 billion deficit.

The Commerce Department reported strong figures for retail sales and inventories in the second quarter that would have contributed to an upward revision of its second quarter gross domestic product estimate of 3%. But economists said the trade figures offset at least part of that upward momentum. The data "help reinforce the notion that the economy, while still growing, seems to have hit a soft patch," said Stone & McCarthy analyst John Canavan.

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The University of Michigan reported its gauge of consumer confidence fell to 94 in a mid-August reading from 96.7 at the end of July. Economists had expected the gauge to tick higher to 97.5. A measure of the consumers' assessment of current conditions jumped but their expectations for the future dropped.

Outlook for U.S. Economic Growth Is Trimmed

By JON E. HILSENRATH and CINDY PERMAN
Staff Reporters of THE WALL STREET JOURNAL
August 13, 2004; Page A2

NEW YORK -- Economists sharply reduced their projections of economic growth in the second half of this year, conceding that the outlook is distinctly less rosy than it seemed just a few weeks ago.

The consensus forecast of the 55 economists surveyed by The Wall Street Journal Online from Aug. 6 through 9 calls for real gross domestic product to grow at an annual rate of 3.8% in the third quarter and 4.1% in the fourth quarter, down from consensus forecasts in late June of 4.4% and 4.2%, respectively. The revisions represented the sharpest downdraft in economic growth expectations since just before the Iraq war.

Some economists said the pullback in their forecast reflects indications that household spending has come under pressure as oil prices have soared to new highs. Yesterday, oil futures in New York topped $45 a barrel for the first time, though prices have been much higher historically when adjusted for inflation. (See related article.) While economists said oil prices would have to rise even higher -- perhaps to $60 per barrel -- to seriously jeopardize the economic recovery, they believe that rising oil prices have played an important role in slowing consumer spending.

The lower forecasts still represent a pickup from the actual GDP growth rate of 3.0% in the second quarter that ended in June and should be enough to bring modest improvement to the job market. Moreover, the forecasts are broadly in line with the outlook of Federal Reserve officials, who have said that economic growth is likely to pick up later in the year.