President Obama’s claim Friday that “the private sector is doing fine” sparked a firestorm of attacks from Republicans and prompted a quick retraction, of sorts, from Obama, who later said “it is absolutely clear that the economy is not doing fine.”
The cost of living in the U.S. rose in February by the most in 10 months, reflecting a jump in gasoline that failed to spread to other goods and services.
The consumer-price index climbed 0.4 percent, matching the median forecast of economists surveyed by Bloomberg News, after increasing 0.2 percent the prior month, the Labor Department reported today in Washington. The so-called core measure, which excludes more volatile food and energy costs, climbed 0.1 percent, less than projected.
The biggest jump in gasoline in more than a year accounted for about 80 percent of the increase in prices last month, leaving households with less money to spend on other goods and services. Photographer: Victor J. Blue/Bloomberg
March 15 (Bloomberg) — Bloomberg’s Carol Massar examines price movements on items that make up the U.S. consumer price index. She reports on Bloomberg Television’s “InsideTrack.” (Source: Bloomberg)
March 16 (Bloomberg) — Bloomberg’s Mike McKee reports that the cost of living in the U.S. rose in February by the most in 10 months, reflecting a jump in gasoline that failed to spread to other goods and services. He speaks on Bloomberg Television’s “Inside Track.” (Source: Bloomberg)
The biggest jump in gasoline in more than a year accounted for about 80 percent of the increase in prices last month, leaving households with less money to spend on other goods and services. Federal Reserve policy makers say the advance in fuel costs will be temporary, and most see little risk inflation will flare out of control as unemployment exceeds 8 percent.
“There are some worries from the energy prices perspective, but the Fed and most people realize that the increase will probably be transitory,” said Benjamin Reitzes , an economist at BMO Capital Markets in Toronto. “Outside of energy prices, there is not much risk for the consumer.”
Stock-index futures held earlier gains after the report. The contract on the Standard & Poor’s 500 Index maturing in June rose 0.2 percent to 1,399.3 at 8:31 a.m. in New York. Treasury securties trimmed losses,, with the yield on the benchmark 10- year note at 2.32 percent, down from a high of 2.35 percent in the minutes before the data was released.
Estimates of the 80 economists surveyed ranged from increases of 0.2 percent to 0.6 percent.
Consumer prices increased 2.9 percent in the 12 months ended in February, the same as in January.
The gain in the core gauge followed a 0.2 percent increase in January and was smaller than the 0.2 percent gain median forecast of economists surveyed. They were up 2.2 percent for the last 12 months, compared with 2.3 percent for the 12 months ended in January.
Today’s report showed energy costs increased 3.2 percent from a month earlier. Gasoline jumped 6 percent, the most since December 2010.
Escalating oil prices has pushed up the cost of the fuel. Regular gasoline in February averaged $3.56 a gallon, or 18 cents more than January, according to AAA, the nation’s biggest auto group. It was the highest monthly average since September.
The cost has kept climbing, reaching $3.82 on March 14, the highest in 10 months.
The Fed, nonetheless, said it anticipates that the pressure on consumer prices from energy will wane later in the year.
“Inflation has been subdued in recent months although prices of crude oil and gasoline have increased lately,” the Federal Open Market Committee said in a statement following a March 13 meeting. Oil will “push up inflation temporarily, but the committee anticipates that subsequently inflation will run at or below the rate that it judges most consistent with its dual mandate” of stable prices and maximum employment.
The central bank’s preferred inflation gauge, the measure calculated by the Commerce Department and tied to consumer spending, rose at a 1.2 percent annual rate in the fourth quarter. Fed officials have set an explicit inflation goal of 2 percent.
Today’s report showed food costs were little changed, the least since July 2010.
Clothing Less Expensive
The increase in the core measure reflected higher prices for new cars and hotel stays. Clothing costs dropped by the most since July 2006, and used-cars were also cheaper last month.
“We feel like inflation will moderate,” Charles Holley, chief financial officer at Wal-Mart Stores Inc. (WMT), said during a March 7 investor conference. “The one wildcard, though, is going to be gas prices. If oil continues to go up, I think that could be a drag on economies around the world.”
Paychecks are failing to keep up with even limited inflation, another Labor Department report today showed. Hourly earnings adjusted for prices dropped 0.3% in February, and were down 1.1 percent over the past 12 months, today’s report showed.
A Labor Department report yesterday showed prices paid to producers rose 0.4 percent in February, paced by the gain in energy expenses. Import prices, reported March 14, also climbed 0.4 percent.
The CPI is the broadest of the three monthly price measures from the Labor Department because it includes goods and services. About 60 percent of the CPI covers prices consumers pay for services ranging from medical visits to airline fares and movie tickets.
To contact the editor responsible for this story: Christopher Wellisz at firstname.lastname@example.orgConsumer Prices in U.S. Rose in February as Gasoline Jumped
The current-account deficit in the U.S. widened more than forecast in the fourth quarter to $124.1 billion, the biggest in three years.
The gap, the broadest measure of international trade because it includes income payments and government transfers, grew 15 percent from a revised $107.6 billion shortfall in the prior quarter that was smaller than initially estimated, a Commerce Department report showed today in Washington. The median forecast of economists in a Bloomberg News survey called for a $115 billion fourth-quarter deficit.
Port of West Sacramento, California. Photographer: Ken James/Bloomberg
Imports (USTBIMP) of goods may keep rising as an improving job market underpins consumer spending, and businesses replace outdated equipment. The overall balance of payments deficit is also a reminder of U.S. dependence on foreign investors for funding.
“A widening of the balance just tells you about the relative growth rate of the U.S. compared with other economies,” said Jeremy Lawson, a senior U.S. economist at BNP Paribas in New York. “There’s a fairly good chance that the deficit will widen again because imports are on track to outpace exports.”
The gap for all of 2011 widened to $473.4 billion, or 3.1 percent of gross domestic product, from $470.9 billion a year earlier.
Estimates of the 43 economists in a Bloomberg survey ranged from deficits of $103 billion to $126 billion. The third-quarter shortfall was revised from a previously reported $110.3 billion.
Prices of goods imported into the U.S. rose less than forecast in February, reflecting the biggest drop in food costs in three years, another report today showed. The 0.4 percent gain in the import-price index follows little change in January, Labor Department figures showed today inWashington. Economists projected the gauge would increase 0.6 percent, according to the median forecast in a Bloomberg survey.
The gap represented 3.2 percent of GDP last quarter, compared with 2.8 percent in the third quarter.
The trade deficit, which accounted for most of the current- account gap, widened 4.7 percent to $141.1 billion in the fourth quarter, today’s report showed.
Rising oil costs are contributing to the shortfall. Crude oil futures on the New York Mercantile Exchange averaged $94.06 last quarter, up from $89.54 the prior three months.
More recent figures indicate the current-account balance may widen this quarter. The trade gapgrew to $52.6 billion in January, the biggest deficit since October 2008, from $50.4 billion in December. Imports rose to a record in January, as did exports of autos and capital goods.
“For many products, demand has been above our ability to produce,” Mike DeWalt, director ofinvestor relations at Caterpillar Inc. (CAT), the world’s biggest maker of trucks, said on a Jan. 26 conference call with analysts. “We have invested in Caterpillar factories in the United States and around the world to increase production.”
U.S. income on overseas assets fell by $5.7 billion to $180.7 billion in the fourth quarter, today’s report showed. Foreign earnings on U.S. assets, including wages and compensation, increased by $4.6 billion to $130.5 billion.
That left a $50.3 billion surplus on income payments, down from $60.6 billion surplus in the prior quarter. U.S. investments overseas generally yield more than the Treasury securities that foreign investors prefer to buy, helping maintain the income surplus.
Payments by the U.S. government to foreigners and other private transfers abroad exceeded inflows from overseas by $33.3 billion last quarter, compared with $33.5 billion in the previous period.
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Friday, the Commerce Department is expected to report the deficit on international trade in goods and services was $48.4 billion in January, only slightly changed from December.
This trade deficit is the most significant barrier to more robust economic growth and jobs creation.
The pace of economic recovery has disappointed, because the U.S. economy suffers from too little demand for what Americans make.
Consumers are spending again—the process of winding down consumer debt that followed the Great Recession ended last April; however, every dollar that goes abroad to purchase oil or Chinese consumer goods, and does not return to purchase U.S. exports, is lost domestic demand that could be creating American jobs.
Oil and consumer goods from China account for virtually the entire trade gap.
The failure of the Bush and Obama administrations to develop and better use abundant domestic petroleum resources, and address subsidized Chinese imports are major barriers to reducing unemployment.
The pace of jobs creation likely slowed to about 204,000 in February from 243,000 in January; whereas, 367,000 jobs must be added each month for the next 36 months to bring unemployment down to 6 percent.
With federal and state government cutting payrolls, the private sector must add about 390,000 per month to accomplish this goal. Growth of at least 4 to 5 percent a year is needed to accomplish that.
Unemployment has fallen, largely because working-age adults are dropping out of the labor force—they are neither employed, nor seeking work.
Since October 2009, the jobless rate as fallen from 10 to 8.3 percent, despite the fact that the percentage of working aged adults employed stayed constant at about 58.5 percent. The percentage of adults participating in the labor force—the employed and those unemployed but making some effort to find work—fell from 65.0 to 63.7 percent.
Simply, during this recovery, the most effective jobs creation program has been to convince more adults that they don’t want a job or it is futile to look for a decent position, and simply quit looking—that phenomenon has accounted for 75 percent of the reduction in the unemployment rate over the past 27 months.
Just to keep up with productivity growth, which averages at about 2 percent a year, and natural increase in the adult population, which is about 1 percent, the economy must grow at about 3 percent a year—unless more adults quit looking for work altogether. As stronger growth attracts immigration and encourages idle adults to reenter the labor force, growth in the range of 3.5 percent is needed to sustain a full employment economy.
The economic recovery began five months after President Obama assumed the presidency, and GDP growth has averaged a disappointing 2.4 percent a year.
This is in sharp contrast to Ronald Reagan’s economic recovery. Like Mr. Obama, he inherited a deeply troubled economy, implemented radical measures to reorient the private sector, and accepted large budget deficits to get their plans in place. As Mr. Reagan campaigned for reelection, his post-Carter malaise economy grew at a 7.1 percent rate. That expansion set the stage for the Great Moderation—two decades of stable, non-inflationary growth.
Most economists agree, growth is inadequate because demand is too weak. The trade deficit is the culprit.
Consumers are spending and taking on debt again, but too many dollars spent by Americans go abroad to purchase Middle East oil and Chinese consumer goods that do not return to buy U.S. exports. This leaves many U.S. businesses with too little demand to justify new investments and more hiring, too many Americans jobless and wages stagnant, and state and municipal governments with chronic budget woes.
In 2011, consumer spending, business investment and auto sales added significantly to demand and growth, and exports did better too; however, higher prices for oil and subsidized Chinese manufactures into U.S. markets pushed up the trade deficit and substantially offset those positive trends. Now a recession in Europe, slower growth in Asia, and consumer debt will curb demand at least into the spring and summer.
The Obama administration imposed regulatory limits on conventional petroleum development are premised on false assumptions about the immediate potential of electric cars and alternative energy sources, such as solar panels and windmills. In combination, administration energy policies are pushing up the cost of driving, making the United States even more dependent on imported oil and overseas creditors to pay for it, and impeding growth and jobs creation.
Oil imports could be cut in half by boosting U.S. petroleum production by 4 million barrels a day, and cutting gasoline consumption by 10 percent through better use of conventional internal combustion engines and fleet use of natural gas in major cities.
To keep Chinese products artificially inexpensive on U.S. store shelves, Beijing undervalues the yuan by 40 percent. It accomplishes this by printing yuan and selling those for dollars and other currencies in foreign exchange markets. In addition, faced with difficulties in its housing and equity markets, and troubled banks, it is boosting tariffs and putting up new barriers to the sale of U.S. goods in the Middle Kingdom.
Both Presidents Bush and Obama have sought to alter Chinese policies through negotiations, but Beijing offers only token gestures and cultivates political support among U.S. multinationals producing in China and large banks seeking business there.
The United States should impose a tax on dollar-yuan conversions in an amount equal to China’s currency market intervention. That would neutralize China’s currency subsidies that steal U.S. factories and jobs. That amount of the tax would be in Beijing’s hands—if it reduced or eliminated currency market intervention, the tax would go down or disappear. The tax would not be protectionism; rather, in the face of virulent Chinese currency manipulation and mercantilism, it would be self defense.
Cutting the trade deficit in half, through domestic energy development and conservation, and offsetting Chinese exchange rate subsidies would increase GDP by about $525 billion a year and create at least 5 million jobs.
Peter Morici is a professor at the Smith School of Business, University of Maryland School, and former chief economist at the U.S. International Trade Commission. Follow him on Twitter@PMorici1.