Wednesday: PPI Should Provide More Fed Hints

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By John J. Edwards III
Staff Reporter

It takes more than just weak economic data to excite the markets these days.

The Tuesday report on

April retail sales

came in pretty much in line with expectations, posting declines of 0.3% in the total figure and 0.1% in the nonauto figure. The nonauto number matched the tally from March, and the total number compared with a flat March figure. But traders took no solace from the report, as bond prices plummeted and stocks headed modestly lower.

Observers greeted the retail sales figures with some skepticism. "Today's retail sales figures represent the Trojan Horse of economic statistics," Ken Mayland, chief economist at

KeyCorp

in Cleveland, wrote in a research note. "To conclude that the consumer is tapped out based on one month's results, after an exceptionally strong first quarter, while job growth and confidence remain strong, is to invite ruin."

Of course, the big deal on Wall Street about this week's economic reports is not so much what they say about the economy as what they say about whether the

Federal Reserve

will raise short-term interest rates again May 20. Donald Fine, chief market analyst at

Chase Asset Management

, said the Wednesday release of the

Producer Price Index

and the Thursday report on the

Consumer Price Index

both should show more evidence of slowing. But does that mean there won't be a tightening?

"I think the probability is very high that there's one more tightening left in these guys," Fine said. "The argument for a tightening on economic grounds is very strong." But there's a factor that could stave off the action to another time, he said: politics. Fine said the prospect of a final balanced-budget deal in

Congress

, regardless of how unlikely its ultimate result might be, could give the Fed political cover to delay a tightening to July or later.

"An argument based solely on economics would clearly call for a tightening," Fine said. "But as the world turns, things are seldom solely based on economics."

Wednesday's numbers

(all times EDT):

Producer Price Index

(8:30 a.m.): Measuring inflation or the lack thereof in producer prices for April. For the total figure, the consensus median estimate is a flat figure versus a 0.1% decrease in March. For the core figure, excluding the volatile food and energy sectors, the consensus calls for a 0.1% increase versus 0.4% in March.

Business inventories

(8:30 a.m.): For March. The consensus median estimate is a 0.3% increase, the same as in February.

Consumer Comfort Index

(6:30 p.m.): The

ABC/Money Magazine

gauge for the week ended Sunday, compared with -1 in the prior week. The 52-week high is +1, set the week ended April 13; the 52-week low was -14, set the week ended May 19, 1996.