Transcripts

The Trade Change Increases Inflation Concerns

SUSIE GHARIB: That trade news worried investors today as well as several economic reports that left the markets concerned about inflation and a slowdown in the economy. Scott Gurvey explains.

SCOTT GURVEY, NIGHTLY BUSINESS REPORT CORRESPONDENT: Spending was up and so was inflation. That's the bottom line of the statistics released today and they make it less likely the Federal Reserve will be cutting interest rates in the near term. In February both personal spending and personal income increased at a seasonally adjusted rate of 0.6 of 1 percent. That's double what most economists were expecting. The report indicates that income gains are allowing consumers to meet higher energy prices without reducing consumption. That will tend to keep prices high. There was in fact an unexpected jump in the personal consumption core deflator, one of the Federal Reserves favorite inflation indicators. But economist James Glassman of JPMorgan Chase says the markets are not so worried about inflation.

JAMES GLASSMAN, SR. US ECONOMIST, JP MORGAN CHASE: When you look at market expectations for inflation, they haven't changed much. Despite these last couple months that have shown higher prices of consumer goods, inflation expectations are pretty stable. People are looking beyond all this. And that's why I think many people in the market sense that the bigger danger to the economy is really more the problems in the mortgage sector and the building sector and the slowdown in the economy.

GURVEY: Those fears may also be weighing on consumers. Pessimism is on the rise in spite of rising income. The Reuters/University of Michigan final index of consumer sentiment dropped to 88.4 in March from 91.3 in February. Economist Joseph Lavorgna of Deutsche Bank says that's the lowest reading in six months.

JOSEPH LAVORGNA, CHIEF US ECONOMIST, DEUTSCHE BANK: I think it reflects some of the difficulties in the sub-prime market. I think it reflects the fact that stock market volatility has picked up. And I think importantly it reflects higher gasoline prices. Gasoline since the beginning of the year is up $0.40, about $2.65 a gallon. For every one penny rise in gasoline, if that's sustained, its like a $1 billion tax hike for households.

GURVEY: So far there has been no evidence of a slowdown in employment, a certain sign of a weak economy. The employment report for March is due out one week from today and market watchers will be anxiously awaiting that number. Scott Gurvey, NIGHTLY BUSINESS REPORT, New York.