One of the items below refers to the housing component of the CPI, which is
based on "owners' equivalent rent," the rent that homeowners would have to
pay to occupy their present dwellings. It is stated that the purchase price
of houses often moves in the opposite direction from rents, thus biasing the
CPI.
In fact we know that rents lag house prices by about 18 months. Hence the
housing price inflation of 1997 - 1998 is just now being felt in the rental
market. The result is that inflation for the last two years was understated
while inflation for 1999 and 2000 will be overstated. Over the course of
the business cycle it averages out.
Dave
----------
> BLS DAILY REPORT, FRIDAY, OCTOBER 15, 1999:
>
> Today's News Release: PRODUCER PRICE INDEXES -- SEPTEMBER 1999 indicates
> that the Producer Price Index for Finished Goods increased 1.1 percent in
> September, seasonally adjusted. This increase followed a 0.5 percent
> advance in August, and a 0.2 percent gain in July and represents the
> largest one-month increase since September 1990, when prices for finished
> goods rose 1.3 percent. Prices received by producers of intermediate
> goods gained 0.3 percent, following a 0.8 percent increase in the prior
> month. The crude goods index moved up 5.1 percent, after rising 4.6
> percent in August.
>
> The price of goods imported into the United States increased 0.7 percent
> in September, continuing to reflect rising costs for imported petroleum,
> which rose 62 percent over the last 12 months despite some slackening last
> month, BLS reports (Daily Labor Report, page D-3).
>
> The U.S. boasts higher living standards than virtually all industrial
> nations. But as a recent analysis in the "Monthly Labor Review" by
> economists Bart van Ark and Robert H. McGuckin of the Conference Board
> indicates, that doesn't necessarily mean it leads the pack in labor
> productivity. Indeed, they find that several nations, such as Belgium and
> France had higher productivity levels in 1997 than the U.S. The likely
> explanation is that labor market rigidities and relatively high wages in
> Europe have induced many employers there to substitute capital for labor,
> boosting productivity. Although capital investment is also strong in the
> U.S., however, unemployment is much lower. Americans work longer hours,
> and more people (including low-skilled workers) are in the labor force.
> The upshot is that the U.S. enjoys much higher per capita income, or GDP,
> which is the usual measure of living standards (Business Week, October 18,
> page 30).
>
> A drop-off in car and truck sales curbed retail sales in September,
> holding the overall increase to just 0.1 percent, the Commerce Department
> says. Nevertheless, sales minus the automotive group still were up 0.6
> percent for the month, suggesting continued vibrancy in consumer spending,
> economists noted. Besides, revised data showed that retail sales lurched
> ahead 1.5 per cent in August, stronger than the 1.2 percent gain first
> reported a month ago (Daily Labor Report, page D-5).
> __Sales at retail stores rose a stronger-than-expected 0.1 percent last
> month, the Commerce Department says. Its report, which showed robust
> consumer spending on items such as furniture, groceries and gasoline and
> most of the weakness focused in auto sales, took many economists by
> surprise (The Washington Post, page E2).
> __Retail sales rose in September, as furniture and department stores
> reported their best months since early this year . Spending could
> continue to gain, as workers have little trouble finding jobs, a separate
> report from the Labor Department suggested today. First-time claims for
> unemployment benefits unexpectedly fell below 300,000 last week, after 2
> weekly increases because of Hurricane Floyd (The New York Times, in a
> Bloomberg News article, page C4).
>
> Initial claims filed with state agencies for unemployment insurance
> benefits decreased by 29,000 to a seasonally adjusted 285,000 in the week
> ended October 9, the Employment and Training Administration announces
> (Daily Labor Report, page D-1).
> __The Labor Department said initial claims for unemployment insurance were
> much lower than expected, down 29,000 in the week ended Saturday to
> 285,000. Jobless claims numbering less than 300,000 are widely considered
> to be an indication of a tight labor market (The Wall Street Journal, page
> A2).
>
> Barely one-third of the nation's immigrants have obtained citizenship, a
> smaller proportion than at any time in the past century, according to a
> new U.S. Census Bureau study that raises questions about how well the
> record numbers of immigrants arriving here are integrated into American
> life. Only 35 percent of the foreign born people in the United States in
> 1997 were naturalized citizens, compared with 64 percent in 1970. In
> addition, according to Immigration and Naturalization Service estimates,
> there are at least 5 million illegal immigrants in the country and large
> numbers of other immigrants who have temporary residency permits. Strict
> new immigration laws that took effect in 1996 make it much more difficult
> for these people to win permanent residency much less citizenship (The
> Washington Post, page A1)..
>
> Manufacturing and construction executives expect higher borrowing costs
> and a shortage of workers to cause slower growth in their industries,
> surveys by Dun & Bradstreet indicate (The Washington Post, page E2).
>
> Economists' ideas are valued more than their forecasts, says Jonathan
> Fuerbringer writing in The New York Times (page C1). From 1990 through
> 1998, for example, the consensus economic forecast at the start of the
> year turned out to be, on average, 1.4 percentage points below the actual
> annual growth rate, according to the Blue Chip Economic Indicators. And
> the consensus estimate for 1999 -- 2.4 percent as recently as January ---
> is already well below the 3.4 percent growth rate in the nation's GDP for
> the first 6 months of the year. It is likely to be further off the mark
> for the full year.
>
> Home heating oil prices are expected to rise about 25 percent from last
> winter. Natural gas will be up about 15 percent. One unknown: whether
> antsy consumers will drive up prices even more because of Y2K fears,
> according to a graph in Business Week (October 18, page 6). The cost of
> heat for homes with central heating will go up 90 percent, homes using
> gas, electricity or oil for heat, 91 percent; homes with no heating
> equipment, less than 1 percent; homes uncomfortably cold for at least one
> day, 9 percent; homes with backup portable heater, 7.5 percent. Source of
> the data is the Census Bureau and the Energy Department.
>
> Analysts monitoring U.S. housing inflation have been doing a double take.
> On the one hand, such items as home prices and interest rates that
> presumably influence shelter costs have been picking up steam, with the
> tabs for similar quality houses running about 5.5 percent above
> year-earlier levels. On the other hand, the housing costs component of
> the CPI is up only 2.5 percent or so year over year. The deceleration in
> core consumer inflation (excluding food and energy prices) this year to
> less than a 2 percent annual rate is often ascribed to rapid technological
> change and declining import prices. But a lot of it is due to the weak
> performance of housing costs, which account for 35 percent of the core
> CPI. If the measure of such costs is faulty, then inflation is being
> underestimated. That, in fact, is the view of L. Douglas Lee of Economics
> from Washington. Lee blames a new methodology adopted by the Labor Dept.
> last January to estimate owners' housing costs or "homeowners' equivalent
> rant,' which accounts for the bulk of housing costs in the CPI. Noting
> that Labor statisticians admit that there may be a problem with new
> sampling techniques, he thinks inflation in the first half would have been
> at least a quarter of a percentage point higher if housing costs had been
> measured more accurately. Even if this is so, however, economist Robert E.
> Mellman of J.P. Morgan & Co. thinks measured housing inflation would still
> have slowed. In the CPI, he notes, owners' housing costs are supposed to
> reflect what they would pay if they were renters. And these imputed rents
> are extrapolated from a survey of rental homes that "look like" the stock
> of owner-occupied homes. This is important because home prices and rents
> often move in opposite directions. As home sales accelerate, they draw
> people out of the rental market even as they push up home prices. And
> less demand for rental housing causes rents to weaken. If, as Mellman
> thinks likely, home sales slacken in the months ahead as the economy slows
> and higher rates bite, then households will start to shift back to the
> rental market. The upshot could be rising rents and a pickup in housing
> inflation. In short, inflation in the housing market can give a misleading
> message to the financial markets (Business Week, October 18, page 30).
>
> "Poverty in America," a special report by Aaron Bernstein in Business
> Week, October 18, page 156, points out that for nearly 3 decades, workers
> in the bottom half of the economy suffered an endless downward spiral, as
> they wages sank further and further behind inflation. Even boom years
> left them largely untouched. Now, at long last, today's rip-roaring
> economy is starting to sweep up workers at the bottom of society, handing
> them real economic progress for the first time since the 1960s.
> Productivity gains have fueled strong demand in virtually all sectors of
> the economy, creating the tightest labor market in a generation. Just in
> the past 2 years or so, these extremely low jobless rates have lit a fuse
> under bottom-end pay, which has shot up by some 10 percent after inflation
> during this time -- the largest gain in decades. Even the most
> disadvantaged groups are participating in the sudden U-turn. The
> inflation-adjusted wages of young African-American males who have never
> gone to college, for example, have soared by 12 percent since 1996. And
> the Census Bureau's 1998 report, released on September 30, shows that the
> annual uppermost income for the poorest fifth of black households has
> jumped by 20 percent since 1992 to $9,1160, even after accounting for
> inflation. Of course, it's still remarkably low, but the growth was twice
> that of the real incomes of the average U.S. household in the same period.
> __Income inequality has finally stopped worsening, contends an editorial
> entitled "Poverty in America: Some Good News" on page 234 of Business
> Week, October 18, page 234.
>
> Full employment won't send prices sky-high, says Aaron Bernstein in a
> Commentary for Business Week (October 18, page 166). The Business Week
> writer, who covers wage trends and social issues from Washington, says the
> Fed did the right think by holding its fire on October 5. He says that
> globalization and deregulated domestic markets keep a tight lid on
> employers' ability to pass along wage pressures in the form of price
> hikes.
>
> "Whisper numbers" -- Wall Street's inside buzz about what a company will
> actually earn as opposed to the "official" published consensus number from
> analysts -- will soon be used to forecast everything from economic
> indicators to company revenues to the Dow Jones industrial average, says
> Business Week (October 18, page 182). But coming up with a whisper for an
> economic indicators such as the CPI is much more challenging than arriving
> at an earnings whisper. Experts say whispers on the economy always have
> existed, but never before has there been a centralized place to publicize
> such numbers as there now is with the web. Now whispers can be accessed
> on WhisperNumber.com.
>
> A study by market researcher International Data Corp. says U.S.'s
> high-tech staff gap is old news, but it's getting worse -- and growing in
> Europe too. In 1999, U.S. companies will have unfilled slots for 722,158
> info-tech workers such as programmers, systems analysts, and technical
> support reps. That gap will grow 5 percent a year through 2002. In
> Europe, vacancies will top 1 million, reflecting its larger workforce.
> What can companies do? Since 90 percent o the rise in high-tech shortages
> are expected to result from companies' failure to hang on to staffers, IDC
> suggests that employers retrain workers and offer more perks (Business
> Week, October 18, page 190B).
>
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