*Haha, just what I said in the last post, how much longer can the "soft patch" excuse be used... and here it is on cue! ...And go figure, Ms. Bull wrote the article!!! ;)
Flat US spending sign of a soft patch Thu Jun 30, 2005 12:34 PM ET By Alister Bull
WASHINGTON (Reuters) - High oil prices pinched U.S. consumer spending and business activity in the U.S. Midwest, data on Thursday indicated, but tame inflation reinforced expectations the Federal Reserve would raise interest rates again.
The U.S. central bank is holding a two-day policy meeting which ends on Thursday. Markets expect a ninth straight quarter-percentage-point increase in short-term rates to 3.25 percent when the Fed announces its decision, expected soon after 2:15 p.m. EDT (1815 GMT).
Earlier, a report showed the National Association of Purchasing Management-Chicago business barometer slipped to 53.6 in June from 54.1, meaning that businesses grew a bit less than expected. The index, which shows growth if the number is above 50, was predicted at 54.3.
The report followed weaker-than-forecast U.S. consumer spending in May and mild readings on inflation, although the latest weekly jobs claims numbers unexpectedly fell -- good news for the June employment report next Friday.
"Oil explains both the Chicago PMI and soft consumption," said Peter Kretzmer, senior economist at Bank of America.
"I saw very little in the consumption numbers to change the idea that we had a modest slowing in the second quarter... The Chicago PMI also indicated that conditions stabilized but were slightly softer in June," he said.
The Commerce Department said personal income in May increased 0.2 percent, just beneath Wall Street forecasts for a 0.3 percent gain. That followed a 0.6 percent advance in April and was the weakest reading since January.
Consumer spending was flat, versus forecasts for an advance of 0.1 percent, after a 0.6 percent increase in April.
The price index for consumer expenditure, a measure of inflation favored by Fed Chairman Alan Greenspan, was also unchanged after rising 0.4 percent in April.
"As the economy strengthened, companies got a little more pricing power, but not enough to push inflation up substantially," said Gary Thayer, chief economist at A.G. Edwards & Sons in St. Louis. "This number shows that inflation is still contained, which is good news for the Fed."
FED ALERT
Investors are on alert for inflation after oil prices recently spiked above $60 per barrel.
Stripping out the volatile effect of food and energy prices, the core PCE price index advanced 0.2 percent as expected after gaining 0.1 percent in April. It now stands 1.6 percent higher than May 2004.
Excluding inflation and taxes, real disposable income rose 0.1 percent or at the same pace as the previous month, the Commerce Department said.
"The very slight increase in personal income is consistent with May's soft reading on hiring activity as well as the slight increase of average hourly earnings," said John Lonski, chief economist at Moody's Investors Services.
Employment growth disappointed in May with just 78,000 new jobs created but analysts expect double the number this month.
A decline in the latest jobless claims data also pointed toward more good news on the labor market front, although the employment component of the Chicago PMI fell to 48.9 from 54.7 in a warning of possible weakness going forward.
The number of Americans seeking initial jobless compensation unexpectedly fell by 6,000 last week to the lowest level in more than two months, the Labor Department said.
First-time claims for state unemployment insurance, an early reading on the resilience of the job market, fell for the second straight week, slipping to 310,000 in the week ended June 25 from a revised 316,000 in the previous week.
A Labor Department analyst said there were no special factors behind the decrease.
The drop in the weekly data defied Wall Street expectations for a rise to 325,000 from the original reading of 314,000 in the week ended June 18.
The closely watched four-week moving average also fell for the second consecutive week, dropping to 323,500 from 333,750 in the previous week. (Additional reporting by Nancy Waitz in Washington and Ros Krasny in Chicago)
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