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More positive economic signs emerge
©Associated Press WASHINGTON -- Falling costs for gasoline, clothes and cars gave shoppers a break and helped to keep overall consumer prices flat in May. That, along with another government report Tuesday showing housing construction last month jumped by 11.6 percent, the largest increase in nearly seven years, offered a dose of good news for the unfolding economic recovery. The recovery has been progressing at a modest pace, but improvements have been spotty. With inflation under control, Federal Reserve policymakers will have leeway to maintain short-term interest at 40-year lows to help the rebound keep rolling, economists said. Many think the Fed will leave rates unchanged at its next meeting June 25-26, with some predicting rates could stay the same through the summer and possibly into the fall, depending on the rebound's vitality in coming months. "With the market jittery, unemployment stubbornly high and inflation not even on the field, the Fed has taken itself out of the game until at least early autumn and perhaps even until December," said economist Oscar Gonzalez at John Hancock Financial Services. The flat reading in the Labor Department's Consumer Price Index, one of the government's most closely watched inflation gauges, came after a 0.5 percent advance in April. That rise was led by higher energy costs. The bigger-than-expected 11.6 percent increase in housing construction reported by the Commerce Department marked the largest gain since July 1995. It followed a 7.3 percent drop in April. "The mood among builders is good," said David Seiders, chief economist at the National Association of Home Builders. "They are facing good, solid demand. Mortgage rates are low and there's been strong increases in house values in the face of a stock market that refuses to show much life at all." Single-family home construction rose 9.6 percent in May, and new multifamily home projects, such as apartments and condos, rose 23.2 percent. On Wall Street, the upbeat housing report helped to give a small lift to the Dow Jones Industrial Average, which closed up 18.70 points at 9,706.12. The Bush administration, while welcoming the housing news, wants to make sure the recovery grows stronger. "That's more positive news, but we need to continue to take steps to encourage economic growth and job creation," White House spokesman Scott McClellan said. He cited as examples Bush's tax cuts, energy plan and legislation granting Bush expanded power to negotiate trade pacts. In the CPI report, the core rate of inflation, which excludes volatile energy and food prices, edged up 0.2 percent in May, down slightly from a 0.3 percent advance the month before. The flat reading on the overall CPI was slightly better than the tiny 0.1 percent rise many analysts were expecting, while the core inflation rate matched forecasts. Although companies, whose profits took a hit during the slump, may be itching to raise prices, many probably will be restrained by competition and cheaper imported goods flowing into the United States, economists said. Moreover, lackluster shoppers -- illustrated by weak sales at the nation's retailers -- also should help keep a lid on price increases. Helping out May's tame inflation showing was a 0.7 percent drop in energy prices, which had risen a sharp 4.5 percent in April. World oil prices recently cooled off as global output increased, fears of supply disruptions receded and demand was sluggish. Last month's drop in overall energy prices largely reflected a 2.8 percent decline in gasoline prices. However, prices for fuel oil, electricity and natural gas all rose. Clothing prices fell 0.6 percent last month as retailers discounted spring and summer merchandise. New automobile prices and food prices each dipped by 0.2 percent. Prices for tobacco products fell 2.7 percent. But prices for medical care continued their upward climb, rising 0.5 percent in May. Prices for medical care are running 4.7 percent higher than a year ago. Air fares rose 1.8 percent, the largest increase in a year. For the first five months of this year, all consumer prices rose at a seasonally adjusted annual rate of 3 percent. That compares with an increase of 1.6 percent for all of 2001. Much of the pickup reflects higher energy prices this year.
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From the Times Business report
From the AP
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