The Marketplace Report: Mixed Signals on Economy
ALEX CHADWICK, host:
Back now with DAY TO DAY. I'm Alex Chadwick.
Mixed news on the US economy today from two government reports. Wholesale prices dropped a lot in May, the most in two years, but store sales have sagged, their sharpest fall in a year. "Marketplace's" John Dimsdale joins us from Washington.
John, what are the details here?
JOHN DIMSDALE reporting:
first, producer prices--what factories and shops pay for commodities and goods and services before they sell things to consumers; it's also known as wholesale prices--they dropped six-tenths of a percent, and that's a lot more than the two-tenths drop that the experts had been predicting. Oil prices dropped dramatically in May, and that's the main reason. If you take out the volatile factors of food and fuel, wholesale prices dropped a much less radical one-tenth of a percent.
Now in retail sales, their drop was largely due to cutbacks in car and clothing purchases. You take out autos and the drop was only two-tenths of a percent.
Another thing that takes the sting out of the sales decline today was a separate report on more recent activity at big chain stores. In the first week of June, there was a hefty increase thanks largely to a spurt in summer clothes and air conditioner sales. You go outside in Washington today and you'll instantly understand the sudden demand for that.
CHADWICK: Well, so you have a report that clothing sales are down and clothing sales are up. How does one interpret this information?
DIMSDALE: Well, the glass is half full. I mean, that was more recent June sales. May--the clothing sales sagged in May, but they looked better in June. I guess that was the signal from the economy. You know, consumer spending is two-thirds of the US economy, so a drop in store activity is always a sobering thing. It could give the Fed pause about raising short-term interest rates too high since that's a brake on the economy. That other report, producer prices going down, that indicates no inflation, which should give the Fed room to slow down raising rates.
Still, many observers, including economist Gary Shilling of Shilling & Company, expect the Fed to continue gradually increasing rates at the next meeting at the end of June. He says short-term rates are still historically low.
Mr. GARY SHILLING (Shilling & Company): They also want to have rates high enough that whenever the economy weakens next, and it will sooner or later, that they've got room to cut. And they still worry that there could be deflation out there and they want to be able to cut substantially. So I think they have two reasons to keep going.
CHADWICK: John, what about new jobs?
DIMSDALE: Well, there was this morning a survey of 16,000 employers--it came out from Manpower Incorporated--and they find that businesses have plans to increase the work force. Thirty-one percent of employers expect to increase their hiring in the third quarter of the year, and that's really good news for construction jobs, the best in 25 years according to the CEO of Manpower. Also good news for transportation, public utilities and education.
Coming up later today on "Marketplace," we're going to take a look at one of Iraq's other front lines, the country's hospital system.
CHADWICK: Thank you, John.
John Dimsdale of public radio's daily business show "Marketplace," produced by American Public Media.
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