New U.S. Economic Data Are Mildly Encouraging

By John S. McClenahen Just as the coming of spring is starting to take winter's chill off much of the U.S., the latest government economic data are mildly encouraging. Housing starts for privately owned residences rose an unexpectedly high 8.3% in March to a seasonally adjusted rate of 1.78 million, according to numbers released jointly by the U.S. Commerce department and the U.S. Department of Housing & Urban Development. Single-family housing starts were at a 1.414 million annual rate, 7.7% above their February figure. "The bounce in housing should offer some assurance to the Fed that its current policy stance remains adequate," says Maury Harris, chief U.S. economist at UBS Warburg LLC, New York. Meanwhile, inflation was falling at the consumer level. U.S. Labor Department data show that the closely watched Consumer Price Index rose 0.3% in March, half of February's 0.6% increase, and a match for January's 0.3%. Take away the volatile month-to-month price changes for food and energy, and the resulting "core" CPI was unchanged between February and March. Inflation is likely to keep falling until the U.S. economy begins to grow above its long-term potential rate of about 3.5%, says David A. Rosenberg, chief North American economist at Merrill Lynch & Co. New York. "Until that happens . . . the output gap will widen further, disinflation pressures will gain momentum, pricing power will remain elusive and excess capacity in the goods and services sector will intensify," Rosenberg predicts. In another set of data published by the U.S. Labor Department on April 16, average weekly earnings, adjusted for inflation, increased 0.2% last month. The combination of a 0.1% increase in average hourly earnings and a 0.6% increase in average weekly hours was partly offset by a 0.5% increase in the CPI for urban wage earners and clerical workers.

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