Growth maintains steady rate

Pace considered unlikely to spark inflation increase

`Picture-perfect'

Producer prices, retail sales fall - part of cooling

Economy

September 15, 2000|By BLOOMBERG NEWS

WASHINGTON - U.S. producer prices unexpectedly fell and retail sales cooled last month, signs that the economy, in a record 10th year of expansion, is growing at a pace that is not likely to spark inflation.

"It's just about a picture-perfect economy - impressive economic growth with very little inflationary pressures," said Richard Yamarone, a senior economist at Argus Research Corp. in New York.

Prices paid to producers fell 0.2 percent last month, the first drop since May, the Labor Department said yesterday. That reflected declines in the cost of clothing, computers, cars and gasoline.

Retail sales rose 0.2 percent in August, a fourth of the 0.9 percent increase in July, the Commerce Department said. Sales were 7 percent higher than a year ago, the smallest year-over-year increase since December 1998. Even so, the pace of sales was a percentage point higher than the average year-over-year gain for the expansion, which began in April 1991.

Energy costs are expected to push September prices higher - after crude oil rose to a 10-year high of $35 a barrel this week. Still, with few signs of accelerating inflation outside of rising petroleum prices and slower consumer spending than in the past two years, Federal Reserve policy-makers are likely to hold interest rates steady for the remainder of the year.

"I think we've come to a greater balance," Robert McTeer, president of the Fed Bank of Dallas, said in a speech last month.

The core rate of the producer price index, which excludes energy and food, rose 0.1 percent last month, the same as in July. The cost of cigarettes climbed, and without the increase in tobacco prices, the core rate would have been unchanged, the Labor Department said.

Through August, the overall PPI rose at a 3.2 percent annual rate, compared with a 2.8 percent pace for the first eight months of 1999. The core PPI increased at a 1 percent annual rate, compared with no change for the like period last year.

Producer energy prices fell 0.2 percent in August, the second straight monthly decline. The cost of gasoline fell 2.8 percent, also the second drop in a row. Home heating oil prices rose 2 percent after falling 1.3 percent in July. Natural gas prices fell 0.3 percent.

Prices for children's clothing fell 2.6 percent, the biggest drop in almost 12 years. Other clothing costs fell as well.

Food prices dropped 0.7 percent - the fourth straight month without an increase. The cost of beef, pork, dairy products and fresh fruits fell.

The Agriculture Department projects that consumer food prices will increase 2.3 percent for all of 2000, up from a 2.1 percent increase last year, though less than the five-year average increase of 2.6 percent.

August's rise in retail sales was led by increases in purchases of furniture and home furnishings, drugs, groceries and the first increase in clothing in three months.

Outside of those gains, sales were sluggish. A 0.4 percent drop in the value of automobile sales - which could be a result of the price decline - held down the overall retail sales gain for the month, though industry statistics showed a rise in total sales of cars and light trucks last month.

Automakers sold cars at an annual rate of 17.5 million in August, compared with a 17.2 million pace in July. August's sales rate was the strongest since April's 18 million-unit pace.

What's more, consumers in August shopped at discount chains for a wide variety of household goods and clothing. That hurt sales at merchandise group stores including department stores, where sales rose 0.2 percent in August after a 1.5 percent rise in July, the report showed.

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