Vital Signs: Keeping a Lid on Inflation

On tap: January consumer inflation figures and leading indicators, minutes from the Federal Reserve's monetary policy meeting, and more

The U.S. economy didn't roll into 2007 with quite as much momentum as first thought. There appears to be a bigger inventory adjustment underway than many economists thought, which led manufacturers to ease up on production in January.

As a result, present price pressures may not be as strong. This could show up in upcoming inflation reports. For this week's January consumer price index report, economists surveyed by Action Economics are expecting a 0.1% gain for the month, with a slightly larger 0.2% rise outside of food and energy. In recent months, lower energy prices and a slower pace of economic growth have translated into a gradual easing of inflation. However, the current yearly pace of 2.5%, and 2.6% outside of food and energy, remain elevated.

In testimony before Congress on Feb. 14-15, Federal Reserve Chairman Ben Bernanke announced the Fed's economic forecast (see, 2/14/07, "For Bernanke, Capitol Hill's No Easy Street"). Inflation is expected to ease slightly due to the recent run of slower growth. At the same time, however, the economy doesn't have a lot of slack. A pickup in economic growth above the Fed's forecast of 2.5 to 3% this year could once again raise inflation pressures, particularly in the labor market.

A couple of second-tier labor-market reports out this week will provide an update on what appears to be a tight labor market. The Conference Board's January help-wanted index comes out on Feb. 22, after a big rebound in December. And the January figures on real earnings should show that inflation adjusted wages are still growing at healthy pace, after rising 2.1% from a year ago in December.

All financial markets will be closed on Monday, Feb. 19 in observance of the President's Day holiday.

Here is the weekly economic calendar, from Action Economics.

Economic Reports
Report Date Time For Median Estimate Last Period
CPI Wednesday, Feb. 21 8:30 a.m. December 0.1% 0.5%
CPI (ex-food & energy) Wednesday, Feb. 21 8:30 a.m. December 0.2% 0.2%
Leading Indicators Wednesday, Feb. 21 10 a.m. December 0.2% 0.3%


Tuesday, Feb. 20, 10:30 a.m. EST - Federal Reserve Board Governor Susan Schmidt Bies gives a speech as part of the Duke University Fuqua School of Business's Distinguished Speaker Series in Durham, N.C.


Wednesday, Feb. 21, 3:25 p.m. EST - Federal Reserve Bank of San Francisco President Janet Yellen speaks on the economic outlook before the Silicon Valley Leadership Group in Santa Clara, Calif.

MORTGAGE APPLICATIONS - Wednesday, Feb. 21, 7 a.m. EST

The Mortgage Bankers Association issues its weekly mortgage application volume data for home buying and refinancing activity during the week ending Feb. 16. In the latest week, the purchase index eased a little more, to 400.7, from 404.7 during the week ended Feb. 2. The refi index kept climbing, 2031.7, from 1943.4 in the week ended Feb. 2.

Both four-week moving averages moved a little lower. The purchase index was 404 for the week ended Feb. 9, from 413.8 over the week ended Feb. 2. The four-week average for the refi index stood at 1941.1, from 1944.6.

Mortgage rates were virtually unchanged. The average 30-year fixed-rate mortgage was 6.24%, from 6.23% in the week ended Feb. 2.

ICSC-UBS STORE SALES - Wednesday, Feb. 21, 7:45 a.m. EST

This weekly tracking of retail sales, compiled by the International Council of Shopping Centers and UBS bank, will update buying activity for the period ending Feb. 17. Weekly sales for the period ended Feb. 10 gave back some of the prior week's gain. Sales fell 0.8% during the week ended Feb. 10, after a 1.3% jump in the week ended Feb. 3. The increase from a year ago slowed to 3.9%, from 4.3% in the prior week.

CONSUMER PRICE INDEX - Wednesday, Feb. 21, 8:30 a.m. EST

The consumer price index probably grew at a slower pace. Economists queried by Action Economics are forecasting a 0.1% increase in January, after a 0.5% jump in December. The December gain was led by a 4.6% jump in energy prices. In November, the index held steady. On year ago basis, inflation picked up to a pace of 2.5%, from 2% in November, and 1.3% in October.

Housing-related inflation continues to grow at a brisk pace. Owner's equivalent rent grew 0.3% in December, and 4.3% from a year ago. To gauge the cost of housing, rental prices of properties are used. This causes the reading for housing costs to rise even as the housing market cools. That's because less demand for homes means stronger demand for apartments and higher rents. In December, rents rose 0.5% from the previous month and 4.3% from a year ago. The upward pressure on rents, however, may soon ebb as new condominiums now hitting a soft housing market are converted into rental units.

Minus food and energy, consumer prices were up 0.2%, following no change in November. The yearly pace of consumer prices less food and energy stood at an elevated level of 2.6% for a second straight period in December, from 2.8% in October. If the U.S. economy improves and the labor market remains strong, as many economists expect, core inflation may take a while to drift lower.

REAL EARNINGS - Wednesday, Feb. 21, 8:30 a.m. EST

Inflation-adjusted weekly earnings of production workers most likely slipped a little in January. That's based on the consensus forecast of a 0.1% gain in the January consumer price index and a 0.1% dip in average weekly earnings. Real earnings eased 0.1% in December, after a gain of 0.3% in November. Compared to the same period a year ago, inflation-adjusted earnings grew by 2.1%, a slightly slower pace from the 2.7% gain in November.

JOHNSON REDBOOK INDEX - Wednesday, Feb. 21, 8:55 a.m. EST

This weekly measure of retail activity will report on sales for the second fiscal week of Feb., ended Feb. 17. During the first fiscal week, ended Feb. 10, sales were off 1.4% from the same period in January. For the entire month of January, sales were up 1.7% from December.

LEADING INDICATORS - Wednesday, Feb. 21, 10 a.m. EST

The Conference Board's composite index of leading economic indicators is expected to have grown 0.2%. That's the median estimate among economists queried by Action Economics. The December index rose 0.3%, after holding steady in November and declining 0.1% in October. Compared to the same period a year ago, the index was off 0.1%, a small improvement over the 0.2% yearly decline in November.

The index will get a bounce from brighter consumer expectations, which rose to the highest level in two years on signs of a healthy labor market and lower gasoline prices. Further gains in stock prices and a small easing in initial jobless claims will also be positive factors. The index will face some drag from a shorter workweek among manufacturing workers and quicker delivery times to manufacturers as reported in the Institute for Supply Management's factory activity report.

FOMC MINUTES - Wednesday, Feb. 21, 2 p.m. EST

The Federal Reserve will release the minutes of the two-day Open Market Committee meeting held on Jan. 30-31. Investors and economists will scour the release to get a better reading on how the central bank views current economic conditions. The post-meeting press release struck a slightly more upbeat tone on economic growth and maintained its hawkish stance on potential price pressures.

Heading into the new year, the markets thought the Fed would have to cut interest rates in 2007, but that stance has changed. Now fed futures contracts show most investors believe no move will be made.

Another area of interest in the minutes will be the Fed's discussion of releasing economic forecasts and, most likely, inflation targeting. In the prior minutes released on Jan. 3,"at the next FOMC meeting, confirmed for Jan. 30-31, 2007, the Committee intended to consider the role that economic projections and forecasts can play in communicating information."

JOBLESS CLAIMS - Thursday, Feb. 22, 8:30 a.m. EST

Jobless claims jumped in the week ended Feb. 10, to 357,000. In the prior week, claims were revised up a tick to 313,000, from the originally reported 311,000. The four-week moving average climbed to 326,250, from 308,750 in the week ended Feb. 3. Continuing jobless claims for the week ended Feb. 3 jumped to 2.56 million, from 2.49 million in the week ended Jan. 27.

HELP-WANTED INDEX - Thursday, Feb. 22, 10 a.m. EST

The Conference Board issues its index of help-wanted ads, based on ads gathered from major newspapers across the nation. The December index rose to 33, from a level of 29 in each of the prior three months.

The percentage of markets with a rising want-ad volume jumped to 76%, from 41% in November, and 61% in the previous month. Help-wanted ads rose during the three-month period through December in seven of the nine U.S. regions.

The Conference Board's tracking of online job ads slipped some in January due to fluctuations in seasonal hiring. The index is not seasonally adjusted. Total monthly online job ads fell by 202,800 in January. That resulted in 2.1 advertised vacancies for every 100 persons in the labor force, down from 2.2 in December. But the level was still up from the year-ago result of 1.9 vacancies per 100 persons.


Friday, Feb. 23, 3:35 a.m. EST- Federal Reserve Bank of San Francisco President Janet Yellen speaks on the economic outlook at the Sacramento State University College of Business Administration's Executive Speaker Series in Sacramento, Calif.

Earnings Calendar
Day Companies
Tuesday Genuine Parts, Hewlett-Packard, Home Depot, Wal-Mart Stores
Wednesday Analog Devices, Medco Health Solutions, TJX Companies
Thursday Chesapeake Energy, CMS Energy, ENSCO International, Health Management Associates, Intuit, JCPenney, KeySpan, Newmont Mining, PG&E, Safeway, Sempra Energy, Williams
Friday Clear Channel, Lowe's
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