Economic Double-Hit: High Prices, Low Confidence Another batch of negative economic reports Tuesday: One showed inflation sharply higher; another found consumers in a glum mood; and a third reported housing prices continuing to fall. Nevertheless, the stock market ended the day up.
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Economic Double-Hit: High Prices, Low Confidence

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Economic Double-Hit: High Prices, Low Confidence

MELISSA BLOCK, host:

From NPR News, this is ALL THINGS CONSIDERED. I'm Melissa Block.

ROBERT SIEGEL, host:

And I'm Robert Siegel.

There was another batch of negative economic reports today: one showed inflation sharply higher, another found consumers in a glum mood and a third reported housing prices continuing to fall. Nevertheless, the stock market ended the day up.

NPR's John Ydstie sorts it out for us.

JOHN YDSTIE: Let's start with the report on housing. The S&P/Case-Shiller Home Price Index showed average prices in 20 large cities in the country down about 9 percent from a year ago. Mickey Levy chief economist at Bank of America says, there's no silver lining there.

Mr. MICKEY LEVY (Chief Economist, Bank of America): Housing prices are declining at an accelerating rate. I don't think we're close to the bottom.

YDSTIE: Fellow economist Stuart Hoffman of PNC Financial Services Group agrees.

Mr. STUART HOFFMAN (Economist, PNC Financial Services Group): We will still see buyers holding back either because they can't get a mortgage or they're waiting for maybe interest rates to go down or most likely, thinking house prices are going to fall, totally different mentality than a couple of years ago, that means the bottom is in here.

YDSTIE: Given the dismal shape of the housing market, it's probably not surprising that the monthly report from the conference board showed consumer confidence falling. But the depths of the indexes decline from nearly 88 to 75 did surprise observers according to Stuart Hoffman.

Mr. HOFFMAN: All in all, the consumer's in a very glum mood, and all just talk about recession and falling house prices is almost becoming a self-fulfilling prophecy anymore and helping to bring on the recession and maybe having it start sooner rather than later.

YDSTIE: Despite all that gloom, President Bush said today the economy is not in a recession but he acknowledged it's in a slow down. On top of the bad news on housing and consumer confidence, the government reported today that producer prices rose 7.4 percent over the past 12 months. That's the sharpest rise in wholesale prices since 1981 at the end of a long period of slow growth and high inflation known as stagflation. But Stuart Hoffman says he doesn't believe we're seeing a repeat of those difficult times.

Mr. HOFFMAN: I would not say this is the start of a multiyear, you know, just prolonged malaise for the U.S. economy and inflation at the same time picking everybody's pockets. I think that's much too dire and not an appropriate analogy to say that the worst of times are here to stay.

YDSTIE: That's because inflation lags growth says Hoffman. And the current slow growth will slow price increases especially because there's no sign of wage inflation. That consolation helped the stock market recover from a mild sell-off this morning and end the day higher. The high inflation numbers will put some pressure on the Federal Reserve says Mickey Levy.

Mr. LEVY: The Fed is very concerned about inflation and it should be and it's also very, very concerned about maintaining its inflation fighting credibility.

YDSTIE: Levy says that means that tomorrow when Federal Reserve Chairman Ben Bernanke goes before the Congress to report on the state of the economy, he will argue the Central Bank has not taken its eye off inflation. But both Levy and Hoffman believed the Fed remains focused on heading off recession and will soon be cutting interest rates again.

John Ydstie, NPR News Washington.

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