Economic reports unleash recession fear
Some analysts see lost momentum
The cost of living in the United States climbed more than forecast in July, which could make it harder for Federal Reserve chairman Ben S. Bernanke to persuade colleagues to immediately act to spur growth after manufacturing in the Philadelphia region plunged in August.
The consumer price index increased 0.5 percent from June, more than twice the 0.2 percent median forecast of economists surveyed by Bloomberg News, figures from the Labor Department showed yesterday. The Philadelphia Fed’s general economic index dropped to minus 30.7 this month, the lowest since March 2009, when the economy was in a recession.
Stocks slumped and gold prices soared to a record as the data showed the world’s largest economy was in danger of shrinking even as inflation picked up. Another report showed fewer Americans on average filed claims for unemployment benefits during the past month, indicating the job market is holding up for now.
“There’s a tremendous loss of momentum,’’ said John Herrmann, senior fixed-income strategist at State Street Global Markets LLC in Boston, who projected manufacturing would contract. “Increasing evidence that the economy is drifting closer to a recession could prompt chairman Bernanke into action before year-end,’’ Herrmann said.
At the same time, Herrmann said, the cost-of-living data may limit his options: “The inflation figures don’t yet give the Fed the ammunition to roll out a new round of non-conventional monetary easing.’’
The Standard & Poor’s 500 Index dropped 4.5 percent to 1,140.65 at the close in New York on signs the economy is slowing and European banks lack sufficient capital. Treasury securities surged, sending the yield on the benchmark 10-year note down to 2.08 percent from 2.17 percent late yesterday, and gold futures for December delivery reached an intra-day high of $1,832 an ounce.
Other reports yesterday showed the residential real-estate market continues to stagnate and consumers’ economic expectations plunged. In addition, the index of leading indicators climbed, boosted by an increase in money supply that may reflect a flight to safety.
Consumer prices were pushed higher by rising costs for fuel that have since retreated, and by an increase in food expenses. Excluding energy and food costs, which are usually more volatile, the so-called core gauge rose 0.2 percent, pushing the increase during the past year to a greater-than-projected 1.8 percent. It was the biggest 12-month gain in more than a year.
The Fed’s informal target range for longer-term core inflation is 1.7 percent to 2 percent as measured by a Commerce Department gauge tied to consumer spending.
With the economic recovery showing signs of stress, the Fed on Aug. 9 pledged to keep its benchmark interest rate at a record low at least through mid-2013 and said it is “prepared to employ’’ policy tools to promote growth.
Rising inflation may intensify debate among policymakers after three regional Fed Bank presidents voted against last week’s decision, the most dissent in almost 19 years.