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The Atlanta Fed's macroblog provides commentary and analysis on economic topics including monetary policy, macroeconomic developments, inflation, labor economics, and financial issues.

Authors for macroblog are Dave Altig, John Robertson, and other Atlanta Fed economists and researchers.


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June 02, 2005


Mixed News Day

As a partial antidote to yesterday's fairly weak ISM report on manufacturing, today we received much better news on April durable goods ordersFrom Business Week Online:

Orders to U.S. factories advanced by 0.9 percent in April, the fastest clip in five months, and worker productivity at the start of the year turned out to have been better than originally thought...

The Commerce Department said factory orders rose in April as demand for durable goods posted a solid 1.9 percent gain, the first increase in four months, led by strength in demand for autos and aircraft. Those gains offset a 0.2 percent decline in orders for nondurable goods, items not expected to last three years.

However, things were not so positive on the inflation-indicator front.  While labor productivity for the first quarter was revised upward...

Meanwhile, the Labor Department reported that productivity went up at an annual rate of 2.9 percent in the first quarter, revised upward from an originally reported 2.6 percent.

... unit labor costs are moving in the wrong direction:

Labor costs, a key factor influencing inflation rates, were up sharply for the past six months...

... the cost of labor per unit of output jumped at an annual rate of 3.3 percent. That followed a revised increase of 7.7 percent in labor costs in the fourth quarter, which was the biggest surge in more than four years...

The government's new report on productivity and unit labor costs reflected major alterations to previous data which had showed unit labor costs rising at a much more measured pace.

The 7.7 percent jump in labor costs in the fourth quarter was the fastest quarterly gain since an 8.9 percent surge in the third quarter of 2000. It had earlier been reported as a much more modest 1.7 percent increase.

Labor Department analysts said the sharp upward revision occurred because of revised data showing bigger bonus payments than originally believed.

That didn't impress everyone...

"The one-time nature of the payouts suggests that there is little inflationary implication from these numbers," said Merrill Lynch economist Sheryl King.

... but others were less sanguine.  From MarketWatch:

"This is seriously bad news for the Fed - costs appear to be spiraling rapidly - and it strongly argues for substantially higher interest rates," said Ian Shepherdson, chief U.S. economist for High Frequency Economics...

"The new data suggests that the upward step in inflation early this year was more than simply the pass-through of higher energy costs to the prices of goods and services," said Michael Moran, chief U.S. economist at Daiwa Securities America Inc.

The same debate showed up at Reuters:

"All those people out there betting that the Fed is approaching the 'ninth inning' of the tightening cycle are likely to be deeply disappointed," economist Stephen Stanley of RBS Greenwich Capital Markets told clients.

Stanley was referring to a baseball analogy used by Dallas Fed President Richard Fisher in interviews on Wednesday that markets took as a suggestion the Fed was nearly done with rate hikes. Most other Fed officials, however, have shown more worry about inflation than a potential slowing in economic growth.

Not all analysts, however, saw the report as signaling a  worrisome inflation risk.

David Rosenberg, chief North American economist at Merrill Lynch, said the surge in compensation that lay behind the rapid run-up in unit labor costs likely reflected one-time bonus payments and not a more general building of wage pressure.

I guess its a toss-up.  Other news was here and there as well.  Again from BW Online:

In other economic news Thursday, the nation's retailers reported generally upbeat sales figures for May with luxury stores such as Nordstrom Inc. and teen retailers including Bebe Stores Inc. among the big winners.

And in a final report, the Labor Department said the number of Americans filing new claims for unemployment benefits shot up by 25,000 last week, the biggest weekly increase in 14 months. Labor Department analysts blamed the increase, which pushed total claims to 350,000 last week, on temporary layoffs in the auto industry.

Wall Street had a muted reaction to all the economic news. The Dow Jones industrial average finished the day up 3.62 points at 10,553.49.

All eyes, then, on tomorrow's employment report.

June 2, 2005 in Data Releases | Permalink

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