Fed yet to cool boom

Two reports indicate even faster growth despite rate rise

`Shopping spree continues'

Numbers increase likelihood of third interest-rate boost


September 01, 1999|By BLOOMBERG NEWS

WASHINGTON -- The U.S. economy is poised to grow faster, separate surveys of consumers and manufacturers released yesterday suggest.

An index of consumer expectations for the economy over the next six months rose to 108.9 in August from 107.6 in July, said the Conference Board, a research group in New York.

That's a sign Americans' "confidence in the future remains high and the consumer shopping spree continues," said Lynn Franco, director of the Conference Board's Consumer Research Center.

The lack of a slowdown and reports of higher prices paid by manufacturers make it more likely that central bankers will raise interest rates a third time this year, analysts said.

"If the economy is going to slow, it's going to take something beyond a couple of Fed tightenings," said Michael Englund, chief economist at Standard & Poor's MMS in Belmont, Calif. The Fed's policy-setting Open Market Committee next meets Oct. 5.

The National Association of Purchasing Management said its factory index rose to 54.2 in August from 53.4 in July. It was the third increase in four months and was aided by increased orders from customers in the U.S. and overseas.

The purchasing management report, released prematurely, also showed that prices for parts and materials rose to the highest level in more than four years.

The association's index of prices paid rose to 59.8 in August from 54.7 during July as prices for oil, aluminum, copper, plastics and paperboard all rose during the month.

The association blamed the release of its report one day early on a mistake by a fax service it uses to send out the report, which usually comes out the first business day of each month.

The Conference Board and purchasing management reports indicate that the U.S. economy is showing few signs of the cooling that Federal Reserve policy-makers would like to see.

"The longest expansion in history looks like a pretty good bet," said Englund, the Standard & Poor's MMS economist. He referred to the possibility of growth continuing through January, making the expansion 107 months old and the longest in U.S. history.

The benchmark 30-year Treasury bond fell as much as five-eighths of a point to yield 6.10 percent after faxes of purchasing management report surfaced before noon on the East Coast. The yield closed at 6.06 percent.

The Dow Jones industrial average fell as much as 132 points after the report, before regaining some of those losses to close down 84.85 points, or 0.8 percent, at 10,829.28.

A 2.9 percent drop in the Dow stock index during July, coupled with the first of the Fed's rate increases and the severe drought conditions in the Northeast during the past few weeks led to the dip in the overall consumer confidence index to 135.8 in August from 136.2 in July, the Conference Board's Franco said.

The increase in the consumers' outlook for the next six months suggests, "These latest dips in confidence are not of great concern," Franco said.

The percentage of those surveyed who see jobs as plentiful dipped only slightly in August, to 48.9 percent from 49.4 percent in July. The percentage of those who expect incomes to increase rose to 25.2 percent from 23.7 percent.

The Conference Board survey showed that while a gauge of consumer interest in buying a house rose to 4.5 percent in August from 4.4 percent in July, the share of those who plan to buy an auto fell to 9.2 percent from 10.5 percent. And those who plan to buy major appliances fell to 30.4 percent from 32.5 percent a month ago.

The purchasing management report showed the new orders index, a gauge of future demand, rose to 56.6 in August from 54.4 during July. Regional purchasing managers indexes in Chicago, Cincinnati and Milwaukee also showed gains.

The report's export index, a gauge of international demand, rose to 54.2 in August from 50.4 during July. The August number was the highest since August 1997 when it was 55.

Baltimore Sun Articles
Please note the green-lined linked article text has been applied commercially without any involvement from our newsroom editors, reporters or any other editorial staff.