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US consumer sentiment weakens in March; harsh weather eyed Producer prices dip

WASHINGTON, March 14, (Agencies): US consumer sentiment weakened in early March as an unusually harsh winter appeared to dim views on the economy’s prospects. The preliminary Thomson Reuters/University of Michigan index of consumer sentiment fell to 79.9 in March from 81.6 the prior month, a survey showed on Friday. Analysts had expected sentiment to improve, and the weak tone of the report could be a sign that severe weather had put consumers in the doldrums. That would back the view that the US economy was only temporarily stuck in a soft patch and would resume stronger growth once the weather improves. “Most of the decline ... can be attributed to the unseasonably bad weather,” said Amna Asaf, an economist at Capital Economics in Toronto. Parts of the United States have suffered colder-than-normal temperatures and blizzards over the winter, which may have contributed to several months of weak hiring.

Culprit
If weather is the culprit, then the Federal Reserve can feel more confident about continuing the winding down of a bond-buying stimulus program. The Fed started trimming monthly bond purchases in January.
The sentiment index was at its lowest level since November. It was largely dragged down by a dip in consumer expectations for future growth. There were some signs of strength in the report. Those polled expected the highest rate of annual income gains since November 2008. “Expectations of income gains were ... consistent with a tightening labor market,” said Cooper Howes, an economist at Barclays Capital in New York. Meanwhile, the prices US companies receive for their goods and services fell slightly in February, the latest sign that inflation is tame.


The producer price index, which measures price changes before they reach the consumer, dropped 0.1 percent in February, the Labor Department said Friday. That’s the first decline since November. A sharp fall in the price markups by wholesalers and retailers pushed down the index.
Producer prices rose 0.9 percent from 12 months ago. That’s the smallest 12-month increase since last May.
Wholesale food and energy prices increased, as did the cost of pharmaceuticals. Excluding the volatile categories of food, energy and retailer and wholesaler profit margins, core prices ticked up 0.1 percent.
The data also reflects the impact of aggressive discounting by clothing and shoe stores. Their profit margins fell 9.3 percent, the steepest on record. Gas stations and grocery stores also reduced their markups.
 

“The overall takeaway ... is that inflation pressures remain quiescent for the time being,” Joseph LaVorgna, an economist at Deutsch Bank, said in a note to clients.
The figures underscore that inflation remains largely in check. Businesses have struggled to raise prices because of historically high levels of unemployment and meager wage growth. That’s made it harder for consumers to pay more. And with unemployment high, those with jobs are less able to demand higher pay.
The index was expanded in January to include services and construction, in addition to goods. That’s made it a more comprehensive measure.
The government will release its better-known consumer price index on Tuesday.
 

Low inflation has enabled the Federal Reserve to pursue extraordinary stimulus programs to try to boost economic growth. It has kept the short-term interest rate it controls at nearly zero for more than five years. It has also been purchasing bonds in an attempt to lower long-term interest rates to encourage more borrowing and spending.
The Fed is now trying to unwind some of that stimulus. It has cut its monthly bond purchases to $65 billion, from $75 billion in January and $85 billion last year.
Fed policymakers will meet next week and are expected to announce another $10 billion cut. Employers stepped up hiring last month, after harsh winter weather cut into job gains in December and January. Consumers also spent more at retailers in February after sharp drops in the previous two months.
The figures suggest the economy may be picking up as the weather improves. That may encourage the Fed to continue scaling back its stimulus. Still, Fed policymakers have expressed concern about the persistence of low inflation. If it remains below target, the Fed could extend its stimulus efforts.

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