Producer prices fall a 7th month Drop is a surprise; skein the longest since June 1931; 'Growth without inflation'; Retail sales rise 0.6 percent, in line with expectations

THE BALTIMORE SUN

WASHINGTON -- Producer prices fell for the seventh consecutive month in July -- the first time that's happened since Herbert Hoover occupied the White House -- and retail sales rose last month in line with expectations, government reports showed yesterday.

The reports showed little evidence of an overheating economy, causing some economists to speculate that the Federal Reserve will refrain from raising the overnight bank lending rate anytime soon.

"We have growth without inflation, which is exactly what [Fed Chairman Alan] Greenspan has been looking for," said Joel Kent, an economist at Lehman Brothers in New York.

July's unexpected 0.1 percent drop in the Labor Department's producer price index matched June's decline and extended a string of wholesale price declines that started in January. Falling food and auto prices more than offset rising energy costs.

A separate Commerce Department report showed retail sales rose 0.6 percent last month, paced by increased demand for autos, building materials and pharmaceuticals. In June, sales increased a revised 0.7 percent.

The Labor Department said the seven consecutive monthly declines in the producer price index, a measure of prices paid to factories, farmers and other producers, is the first of that length since the new finished goods index was incorporated into the report in 1947.

The string extends even further -- to the nine months ending in June 1931 during the Great Depression, a Labor Department analyst said, based on its old All Commodities Index. Prices never really recovered until after Franklin Roosevelt's defeat of Hoover in 1932, said Donald Ratajczak, an economist at Georgia State University in Atlanta. However, the longest string of falling prices was during a depression at the start of the 1920s -- 13 consecutive months ending in June 1921, government figures showed.

The reports initially sent bonds and stocks surging. By midmorning, though, a falling dollar helped erase most of those gains. The dollar fell 3 pfennigs against the deutsche mark to 1.835 marks after the German central bank hinted that it might raise interest rates.

The benchmark 30-year Treasury bond rose half a point in late New York trading to yield 6.63 percent after rising more than a point earlier in the day. Stocks rode a roller coaster. The Dow Jones industrial average first rose 81 points, then slumped to a loss of more than 79 points before closing at 7,928.32, down 32.52 points.

For the first seven months of 1997, producer prices have been falling at an annual rate of 3.1 percent, compared with a rise of 2.1 percent during the first seven months last year. The core rate has been falling at an annual rate of 0.5 percent, compared with a 0.7 percent increase in the first seven months of last year.

Moreover, the core rate of the PPI, which excludes often volatile food and energy prices, fell 0.1 percent in July. In June, the core rate rose 0.1 percent.

Still, Fed officials have signaled they remain on guard, especially since the economy's growth could accelerate in the months ahead. "Those who say this economy can grow without any fear of inflation at 3-plus percent year after year have a very difficult thing to prove," Robert Parry, president of the Federal Reserve Bank of San Francisco, said recently.

By category in July, producer energy prices, which make up 13.6 percent of the index for finished goods, rose 0.1 percent after climbing 0.7 percent in June. Wholesale food prices, which make up another 22.8 percent of the index, decreased 0.2 percent after falling 0.9 percent in June. In other industries, producer prices for autos fell 1.6 percent in July.

Retailers and economists said July's retail sales gains can be sustained in months ahead. "Inflation continues to be very low, interest rates are low, employment and income growth are strong," said J. C. Penney Co. chief economist Ira Silver.

The Commerce Department report showed that, without autos and other vehicles, retail sales rose 0.5 percent in July after rising a revised 0.4 percent in June.

July's overall increase brought the retail sales total to $212.075 billion for the month, adjusted for seasonal variations, the Commerce Department said.

Pub Date: 8/14/97

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