- The Washington Times - Tuesday, August 17, 2004

Consumer prices showed a rare decline in July, after months of buffeting by higher energy costs, and output at U.S. factories and construction of new homes and apartments rebounded from a June swoon.

The trifecta of government reports, released yesterday, provided hope that the economy is emerging from what Federal Reserve Chairman Alan Greenspan termed a “soft patch” in early summer.

“The picture painted by today’s numbers is very positive,” said Mark Zandi, chief economist at Economy.com. “The economy is not stalling out.”

The Labor Department reported that its closely watched Consumer Price Index fell by 0.1 percent in July, the first decrease since November, as gasoline prices, which had posted sharp increases in May and June, retreated by 4.2 percent last month.

Industrial production rose by a healthy 0.4 percent in July, after having fallen by 0.5 percent in June, while construction of new homes and apartments rose a better-than-expected 8.3 percent in July, erasing a 7.7 percent decline the previous month.

The setbacks in June were part of a pattern of weak economic data identifying factors that dragged down overall economic growth as measured by the gross domestic product to 3 percent from April to June, sharply below the 4.5 percent GDP growth rate in the first three months of the year.

The Bush administration, counting on a strong economy to bolster the president’s re-election campaign, said the perceived slowdown, which included a disappointing increase of just 32,000 payroll jobs last month, was only temporary.

Many private economists agree with that assessment, but noted that job growth in August — the next-to-last employment report released before the Nov. 2 election — will likely be depressed by the effects of Hurricane Charley, which struck during the August survey week.

“We think it is unlikely that the economy will stall out, although there are dangers, such as higher oil prices,” said Michael Carliner, an economist with the National Association of Home Builders.

Oil prices reached a record $46.58 per barrel in trading on Friday over concerns about supply disruptions. Prices have retreated a bit this week.

The 0.4 percent increase in industrial output last month reflected a gain of 1.2 percent in mining, a category that covers oil production, and 0.6 percent rise in production at U.S. manufacturing companies, which more than erased a 0.2 percent drop in manufacturing output in June.

Jerry Jasinowski, president of the National Association of Manufacturers, said that the July increase showed that the previous month’s decline “was a temporary breather in an otherwise strong growth curve.”

With last month’s increase, U.S. factories operated at 76.3 percent of capacity, the highest operating rate in more than three years.

In a fourth report yesterday, the Labor Department said that weekly earnings of nonsupervisory workers, after adjusting for inflation, rose by 0.7 percent in July, the first monthly improvement since January. However, over the past 12 months, these inflation-adjusted earnings are down by 0.7 percent.

The presidential campaign of Democratic challenger John Kerry focused on the wage decline over the past 12 months, saying it supported its argument that the middle class is being squeezed by falling wages and soaring costs for health care, energy and education.

“President Bush suggests our economy is now sprinting around the corner. This wage report shows that most families are having to run even harder to keep from falling behind,” said Gene Sperling, a Kerry economics adviser.

However, Treasury Secretary John W. Snow said that “as a result of the president’s economic leadership, we have overcome a recession and seen 11 straight months of job creation.”

Over the past seven months, consumer prices have been rising at an annual rate of 4.1 percent, far ahead of the 1.9 percent increase for all of 2003. This acceleration was driven by a surge in energy prices, which are up at an annual rate of 25.9 percent so far this year, even with the drop of 1.9 percent in July.

Outside the volatile food and energy categories, so-called core inflation rose 0.1 percent in July and is up a more moderate 2.4 percent for the whole year.

The Federal Reserve last week boosted a key short-term interest rate for a second time this year but continued to signal that future rate increases should take place at a gradual pace unless inflation threatens to become more of a problem.

The July CPI performance should persuade Fed officials there is no need to accelerate rate increases to stem inflation, analysts said.

Food prices in July edged up a modest 0.2 percent, matching the June advance, while prices of clothing actually fell by 0.8 percent, the biggest decline in more than three years.

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