U.S. consumer prices fell in November at the fastest rate since 1932, the darkest days of the Great Depression, the Labor Department reported Tuesday

MarketWatch.com reported the following today:

“U.S. consumer prices fell in November at the fastest rate since 1932, the darkest days of the Great Depression, the Labor Department reported Tuesday, as prices for energy, commodities and airline fares plunged across the country.

The U.S. consumer price index fell by a seasonally adjusted 1.7%, the department reported, the biggest drop since the government began adjusting the CPI for seasonal factors in 1947.
But on a non-seasonally adjusted basis, the CPI fell by 1.9%, the biggest decline since January 1932, at the nadir of the Great Depression. Read MarketWatch First Take commentary.
“This is scary stuff,” said Mike Schenk, an economist for Credit Union National Association. “We are teetering on the brink of a massive downward spiral. Deflation is a threat.”
The seasonally adjusted core CPI was flat in November. Read the report.
Economists surveyed by MarketWatch were expecting the CPI to fall by 1.4%. They forecast that the core CPI would rise by 0.1%. See Economic Calendar.
Energy prices declined by a seasonally adjusted 17%, the most since February 1957. Gasoline prices plunged by 29.5% in November, the most since the government began keeping records in February 1967. Fuel oil prices dropped by 7.2%. Commodities prices declined by 4.1% in November.
The CPI data is one of the last pieces of the economic puzzle that the Federal Reserve will have to mull before its announcement about interest rates later Tuesday. The policy-making Federal Open Market Committee is almost universally expected to cut its target for overnight interest rates to 0.5% from 1%….”

U.S. Wholesale inflation jumped at more than twice the expected rate, meaning prices have risen at the fastest pace in 27 years over the past 12 months

“NEW YORK (AP) — U.S. stocks headed for a sharply lower open Tuesday after a steeper-than-expected jump in wholesale inflation raised fresh concerns about the drag rising prices are having on the economy.

The Labor Department’s Producer Price Index showed inflation pressures faced by companies increased in July at more than double the expected rate, rising 1.2 percent. Wall Street forecast a 0.5 percent increase, according to Thomson/IFR.

The increase means prices have risen in the past 12 months at the fastest pace in 27 years and follows figures released last week showing consumers are also facing rising inflation.

A Commerce Department report on July housing starts, meanwhile, showed that construction of homes and apartments fell to the lowest level in more than 17 years. Starts fell to an annual rate of 965,000 units for July; the figure was higher than the rate of 950,000 units analysts had predicted on average but didn’t appear strong enough to quell investors’ worries about the sector.

The weakness in housing has not only imperiled home builders and suppliers but has left financial companies reeling over how to cope with soured mortgage debt.

Following the reports, Dow Jones industrial average futures fell 106, or 0.92 percent, to 11,393. Standard & Poor’s 500 index futures declined 12.50, or 0.97 percent, to 1,269.80, while Nasdaq 100 index futures fell 16.25, or 0.84 percent, to 1,927.25. Futures weakened after the reports.

Bond prices were down after the economic reports. While investors ordinarily seek the shelter of government debt when bad news arrives, inflation is just as bad for bonds as stocks because it can eat into the more modest returns Treasurys usually show. The yield on the benchmark 10-year Treasury note, which moves opposite its price, rose to 3.83 percent from 3.82 percent late Monday. The dollar was mixed against other major currencies, while gold prices fell.

The latest readings don’t reflect all of the pullback in oil seen since mid-July. Oil is down more than $30 a barrel since its July 11 peak of $147.27. Light, sweet crude fell 51 cents to $112.36 a barrel in premarket electronic trading on the New York Mercantile Exchange.

Retailers reported mixed quarterly results, adding to investors’ uncertainty about the economy.

Home Depot Inc. reported a 24 percent decline in its second-quarter earnings but topped Wall Street’s expectations. The nation’s largest home improvement retailer reiterated its forecast for the year amid a weak housing market.

Target Corp. said its second-quarter earnings fell 7.5 percent but topped Wall Street’s expectations despite continued weak sales amid a challenging economy.

Saks Inc. is reporting a wider-than-expected loss in the second quarter as its affluent shoppers cut back on apparel amid a slowing economy. The luxury goods retailer also issued a downbeat forecast for the year.”

Consumer prices up 5%, to highest level in 17 years

U.S. Economy: Consumer Prices Up 5%, 17-Year High (Update2)

By Shobhana Chandra and Timothy R. Homan

July 16 (Bloomberg) — U.S. consumer prices surged 5 percent in the past year, the biggest jump since 1991, just as households struggled with falling home values and the credit crunch.

Spiraling expenses for food and fuel spurred the increase in June, the Labor Department said today in Washington. The cost of living rose 1.1 percent from May, more than forecast and the second-largest rise since 1982. Separate figures showed industrial production rose more than estimated because of the end of a strike at American Axle & Manufacturing Holdings Inc. and increased electricity output.

Price gains accelerated last month even after stripping out energy and food, underscoring the challenge for Federal Reserve Chairman Ben S. Bernanke as he attempts to steer the economy through the slowdown and credit crisis. Treasuries fell.

“This is a problem for the economy; it’s even worse for the Fed,” said Joel Naroff, president of Naroff Economic Advisors Inc. in Holland, Pennsylvania. “Inflation numbers are high enough that under different circumstances the Fed would be hiking rates.”

Excluding food and energy, so-called core costs climbed 0.3 percent in June from the previous month and 2.4 percent from a year before.

Yields Jump

Benchmark 10-year note yields rose to 3.93 percent at 4:20 p.m. in New York, from 3.82 percent late yesterday. The Standard & Poor’s 500 Stock Index advanced 2.5 percent to close at 1,245.36, after earnings from Wells Fargo & Co. topped analysts’ estimates.

Consumer prices were forecast to rise 0.7 percent, according to the median estimate of 79 economists in a Bloomberg News survey. Projections ranged from gains of 0.2 percent to 1.1 percent. Costs excluding food and energy were forecast to rise 0.2 percent, the survey showed.

Bernanke told lawmakers in semiannual testimony on the economy yesterday and today that inflation risks have “intensified.” At the same time, he dropped his June assessment that risks to the economic expansion had diminished, indicating policy makers aren’t ready to raise interest rates to contain expenses.

“We don’t think they’re going to raise rates now — until June next year now is our forecast — until basically the economy starts to get some footing,” Beth Ann Bovino, senior economist at Standard & Poor’s in New York, said in an interview with Bloomberg Radio. “Right now the beast is what’s going to happen with the economy.”

Exceeding Forecasts

Prices were forecast to climb 4.5 percent in June from a year earlier, according to the survey median.

A separate report today said confidence among U.S. homebuilders dropped to 16 this month, a record low. Readings for current sales, expected sales and buyer traffic in the National Association of Homebuilders/Wells Fargo sentiment index also were at all-time lows.

“The magnitude of the housing bubble was unprecedented, and the corrective process promises to be a long and painful one,” Joshua Shapiro, chief U.S. economist at Maria Fiorini Ramirez Inc. in New York, said in a note to clients.

The Fed said today that production at factories, mines and utilities increased 0.5 percent last month after dropping 0.2 percent in May. Capacity utilization, which measures the proportion of plants in use, rose to 79.9 percent from 79.6 percent.

Strike’s Resolution

The resolution of a three-month strike by General Motors Corp.’s largest axle supplier, American Axle, probably helped lift auto output. Excluding autos, factory output fell 0.1 percent for a second month.

Wholesale costs rose 1.8 percent in June, the most in seven months, the Labor Department reported yesterday. From a year ago, prices climbed 9.2 percent, the biggest surge since 1981.

Companies, unable to fully recover ballooning raw-material costs by raising prices, have cut staff and reduced equipment purchases as profits shrink.

Kimberly-Clark Corp., the maker of Huggies diapers and Scott paper towels, said earnings for this year will trail its previous forecast as expenses rise more than twice as fast as predicted,

“Inflation has outpaced our ability to offset higher costs in the near term through price increases, cost reductions and other measures,” Thomas Falk, the Dallas-based company’s chief executive officer, said this week in a statement.

Price Increase

Procter & Gamble Co., the maker of Tide detergent and Head & Shoulders shampoo, last week said it’ll raise prices as much as 16 percent due to higher costs for plastic, energy and paper. The increases start in September and are the Cincinnati-based company’s steepest in at least 18 months.

Energy expenses jumped 6.6 percent, the biggest gain since November. Gasoline soared 10.1 percent and fuel oil jumped 10.4 percent.

The cost of fuel will continue stoking price pressures. Crude oil futures reached a record $147.27 a barrel on July 11 and have risen almost 90 percent in the past year. Regular gasoline, which topped $4 a gallon for the first time in June, kept rising this month, AAA figures show.

The consumer price index is Labor’s broadest gauge of costs. Almost 60 percent of the CPI covers prices consumers pay for services ranging from medical visits to airline fares and movie tickets.

Food Expenses

Food prices, which account for about a fifth of the CPI, increased 0.8 percent, driven by the biggest gain in the cost of vegetables in almost four years.

The report showed that food and fuel weren’t the only items on the rise. Costs for airline fares jumped 4.5 percent, the most since 2001.

Rents which, make up almost 40 percent of the core CPI, also accelerated. A category designed to track rental prices rose 0.3 percent after a 0.1 percent gain in May.

Today’s figures also showed wages decreased 0.9 percent in June after adjusting for inflation, the biggest drop since September 2005, and were down 2.4 percent over the last 12 months. The decline in buying power is one reason economists forecast consumer spending will slow.

Americans trimmed purchases of automobiles, furniture and restaurant meals last month as the cost of gasoline soared, a Commerce Department report showed yesterday. Retail sales rose 0.1 percent, less than forecast, a sign the boost from the tax rebate checks is already fading.

To contact the reporter on this story: Shobhana Chandra in Washington at schandra1@bloomberg.netTimothy R. Homan in Washington at thoman1@bloomberg.net

Global inflation a problem, oil hits another record high on Friday!

Read this on the International version of the New York Times today:

“We were flabbergasted to see how many countries around the globe have inflation running in the double digits,” he added. “We found around 50 countries. And we probably missed some more where data are hard to come by.”

With heavily populated countries such as India on that list, they represent 42 percent of the world’s people grappling with soaring prices that threaten to crimp economic growth.

Oil prices hit another record high above $142 per barrel on Friday, while flooding in the U.S. Midwest, where much of America’s corn and soybeans grow, sent grain markets to record highs.

That will surely stoke already high food and fuel prices and hit emerging markets particularly hard.

India raised interest rates twice in June and economists think more increases are imminent after inflation hit its highest level in more than 13 years in mid-June.

Mexico’s central bank raised its key interest rate on June 20 for the first time in eight months. That surprised many economists, who thought Mexico would keep borrowing costs unchanged because of concerns that weakness in the United States, its top trading partner, would hurt the economy.

Given the widespread price pressures, it is little surprise that the Fed vice chairman, Donald Kohn, stressed that tackling inflation required an international response.

“Policy makers around the world must monitor the situation carefully for signs that the increases in relative prices globally do not generate persistently higher inflation,” Kohn said in a speech last week.”

Dow Jones stocks suffer worst June since the Great Depression

Wall Street opens for trading tomorrow after a depressing week of losses that pushed the Dow Jones industrial average to its worst June since the Great Depression. The blue-chip index is at its lowest point since September 2006.

Investors are again contending with a relentless stream of troubling news from record oil prices to renewed concerns over the health of the financial sector.

“I think the market is trying to make a bottom, but the question is: Will it hold there or just crash through?” said Alexander Paris, an economist and market analyst for Barrington Research. “It feels just like the top of the technology bubble in 2000 – you know there’s something wrong, but it is hard to time it.”

The Dow closed Friday at 11,346.51, a loss of 4.2 percent for the week. The Nasdaq composite index finished at 2,315.63, down 3.8 percent. The S&P 500 index ended the week at 1,278.38, a drop of 3.0 percent.

Friday’s 107-point decline in the Dow left the index down 10.2 percent in June and on the brink of a bear market. The Dow has plunged 19.9 percent since setting an all-time high in October. Market experts define a bear market as a drop of at least 20 percent from a recent high.

“We are already in a bear market,” said Peter Kenny, managing director at Knight Equity Markets. “Even the good ships get stranded on the beach when the tide goes out.”

Connecticut General Assembly overrides Governor’s minimum wage increase veto

The following was published at Courant.com, in the Hartford Courant:

HARTFORD, Conn. – With two votes to spare, the Democrat-controlled state legislature voted Monday to override Gov. M. Jodi Rell’s veto of a minimum wage increase.

It marked the second time that the General Assembly has overturned one of the Republican governor’s vetoes.

The override will ensure that the current minimum hourly wage of $7.65 an hour is boosted to $8 beginning in January, and to $8.25 an hour in 2010. The change will make Connecticut’s minimum wage among the nation’s highest.

“It’s a simple matter of equity,” said Senate Majority Leader Martin Looney, D-New Haven, saying low-wage workers need the $14 weekly increase as gasoline and food prices are increasing.

House members needed a two-thirds majority – at least 101 votes – to override the veto. The final tally was 102-39.

The Senate’s vote was 25-9, a one-vote margin above the minimum 24 votes needed for the override. Both votes were mostly along party lines.

According to the U.S. Department of Labor, Washington currently has the highest minimum wage rate, at $8.07 an hour. Of Connecticut’s neighbors, the minimum wage is $8 in Massachusetts, $7.40 in Rhode Island and $7.15 in New York.

An estimated 65,000 workers in the state receive the minimum wage.

Rell, who supported past minimum wage increases, called Monday’s veto override “a seriously shortsighted decision” that will hurt small businesses during a difficult economic period.

“Even as the national economic picture continues to darken, the legislature has opted to further cloud Connecticut’s business environment,” she said.

Most of Rell’s GOP colleagues agreed.

“Please, before you cast your vote on this bill, think about what you’re doing,” pleaded state Rep. Anthony D’Amelio, R-Waterbury, who also owns a small business. “What you’re doing actually is hurting the people you’re trying to help.”

D’Amelio predicted that businesses will cut workers’ hours to cover the pay increase.

Some Democrats called the Republicans’ concerns a red herring. Senate President Donald Williams, D-Brooklyn, said similar dire predictions were made when lawmakers increased the wage in the past, but they never came true.

Sister Teresa Fonti, co-director of the House of Bread soup kitchen in Hartford, said she’s seeing more poor people with jobs seeking assistance.

“Obviously, this salary is not getting them through the week,” she said.

Democratic leaders initially were unsure how many legislators would attend Monday’s veto session because of summer vacations and work schedules.

New farm bill promises squeeze on family budgets as it encourages further inflation in food prices

from reason.com (click here to read original article):

Farm Bill Follies

Congress avoids every opportunity to reform wasteful and outdated subsidies

The $300 billion farm bill is being cobbled together by Congress this week. As Senate Agriculture Committee Chairman Tom Harkin (D-Iowa) noted, “It’s not just a farm bill. This is a farm and a food and an energy bill.”

As Otto von Bismarck quipped, “Laws are like sausage. It’s better not to see them being made.” Let’s take a look at these three aspects of this unappetizing piece of sausage.

First, what do the farmers get? Answer: A lot. Last year, net farm income reached a record level of nearly $89 billion due to high crop prices. Farm household income averaged $84,000 in 2007, according to the Environmental Working Group (the 2006 average for all U.S. households was $66,000). Despite such good times, the federal government showered $5 billion in direct payments on 1.4 million farmers.

These direct payments have nothing to do with crop productivity or a safety net in case of low prices—they are basically gifts to farmers just because they are farmers. In fact, farmers with gross incomes up to $2.5 million have been eligible for these payments. President Bush wants to cap that at $200,000 in income, but the House is considering a cap of $500,000, and the Senate voted to cap the payments at $750,000 per year in income. Overall, Congress shaved just 2 percent off of the direct payments of $5 billion per year over the next four years. While this is a barely discernible improvement, one would think record high farm incomes combined with a world food crisis would make this a good time for Congress to scrap farming subsidies altogether.

It is true that about two-thirds of farm-bill spending funds nutrition programs such as school lunches and food stamps. Lawmakers added $10 billion to the food stamp program to help lower-income Americans address higher food prices. But why are food prices higher in the first place? Part of the reason is the federal government’s subsidies and its mandate to turn food into fuel—which brings us to the legislation’s energy policy madness.

In December, Congress passed and President Bush signed the Energy Independence and Security Act, which mandated that the U.S. produce 9 billion gallons of conventional biofuels this year. The Act requires that 15 billion gallons of conventional biofuels be produced by 2015 and that 36 billion gallons of conventional and “advanced” biofuels be produced by 2022. How does this affect food prices?

Higher corn prices result from biofuel mandates and subsidies, which encourage farmers to plant fewer acres of wheat and soybeans—which in turn raises their prices. In addition, corn is the chief feed grain for which producers of beef, poultry, and pork must pay higher prices which they will eventually pass along to consumers. In 2006, a bushel of corn sold for just under $2; today it sells for nearly $6.

Currently, most biofuels are produced by turning corn into ethanol. The U.S. Department of Agriculture estimates that the 2008 corn crop will be 14.6 billion bushels, of which 3.2 billion[*] bushels will be fermented into ethanol. In other words, about 22 percent of our corn crop will be floating out the tailpipes of our automobiles next year.

The new farm bill contains a small gesture in the direction of sanity by reducing bioethanol subsidies from 51 cents per gallon to 45 cents per gallon. This should reduce the price of a bushel of corn by about 3 cents, according to the Des Moines Register. On the other hand, Congress is trying get around the unintended consequences of its biofuels policy by offering $1.01 per gallon subsidy for so-called cellulosic ethanol. Large-scale production of cellulosic ethanol has yet to take off, so the farm bill also disperses $400 million in tax credits in the hope of jumpstarting such production. In addition, the bill extends the tariff on imported ethanol until 2012.

The biofuel mandate is not the only reason for higher food prices—higher oil and fertilizer prices as well as commodity speculation also contribute substantially.

But there’s no excuse for Congress to make matters worse with this farm bill. As Rep. Ron Kind (D-Wis.) declared, “Negotiators managed to avoid every opportunity to reform wasteful, outdated subsidies while piling on additional layers of unnecessary spending.” As a consequence, Americans can look forward to thinner wallets as they struggle to fuel their cars and feed their kids.