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A customer using a credit card at a gas station in Miami, Florida.

Concern over disinflation and deflation will probably be put on hold in coming months as commodity prices stabilize, according to economists at Jefferies & Co. in New York. They also contend it will be too soon for Americans to let down their guard.

Changes in monthly price measures in the U.S. are often dictated by swings in energy costs, particularly gasoline, economists Ward McCarthy and Thomas Simons show in a report today. The increase in gasoline prices in May, a month when they are typically little changed, will help boost headline inflation readings this month and maybe next, they said. The change would avert disinflation, when inflation cools to the point that it’s too low, or dreaded deflation, the vicious cycle of declining demand and prices that has plagued countries including Japan.

In addition, commodity prices slumped in the second quarter of 2012, which will provide an artificially low threshold for year-to-year comparisons and make it look like inflation readings are at least stabilizing this quarter.

That will probably not be the case in the second half of the year. Commodity prices shot back up in the third quarter of 2012, so any stabilization this year will again make disinflation rear its head, McCarthy and Simons said.

Japan’s efforts to devalue the yen and regain some advantage for its exports will probably push the value of the dollar up, depressing commodity expenses for U.S. manufacturers, the economists said.

U.S. efforts toward energy independence will also “continue to limit the upside potential of energy prices,” they wrote.

McCarthy and Simons conclude with this thought: “The recent behavior of commodity prices in general and gasoline prices specifically, indicate that the risk of commodity deflation appears to be easing in the near-term, but is likely to reemerge as an issue during the summer in the absence of a sustained rise in commodity prices.”

Original post is Deflation Scare Put on Temporary Hold by Political Capital.

Photograph by Scott Eells/Bloomberg

Traders work on the floor of the New York Stock Exchange (NYSE) as Ben S. Bernanke, chairman of the U.S. Federal Reserve, speaks on television in New York.

When the Federal Reserve announced it would purchase $45 billion a month of Treasury bonds to support the economy, it probably anticipated there’d be plenty to buy. After all, the Fed made its December announcement just a few months after the Treasury closed out the 2012 fiscal year with a $1.09 trillion deficit.

Yet last week the Congressional Budget Office estimated the deficit will shrink to $642 billion, the smallest shortfall in five years. Suddenly the Fed’s purchases, which work out to an annual pace of $540 billion, are poised to gobble up almost all the new debt the U.S. will issue next year.

That may be a winning situation for the Fed, where policy makers are seeking to eventually shrink their monthly purchases. A reduction would push up bond yields and raise borrowing costs across the economy.

“If the Treasury reduces supply as the Fed reduces purchases of Treasuries, then your net impact on yields should be left unchanged,” said Drew Matus, deputy chief U.S. economist for UBS Securities LLC in Stamford, Connecticut, and a former analyst on the New York Fed’s open market desk.

The Treasury Department will sell less debt as surging tax revenue, automatic spending cuts and payments from mortgage-finance companies Fannie Mae and Freddie Mac narrow the budget gap. All else equal, that shrinking supply of Treasuries should put downward pressure on yields.

The Fed owned $1.86 trillion of Treasury securities as of May 15, according to its weekly balance sheet report. That’s about a sixth of the $11.4 trillion in total outstanding marketable U.S. debt. Much of that supply may be held by investors or institutions that don’t intend to sell their holdings.

While the falling supply of Treasuries could help when the Fed wants to slow its purchases, it could create a headache for the central bank if it instead wanted to continue the program. By buying so much U.S. debt, the Fed could dry up liquidity in the market.

Under the current bond-buying program, known as QE3 for the third round of quantitative easing, the Fed is purchasing $45 billion a month of Treasuries and $40 billion a month of mortgage-backed securities.

One reason for concern about the health of markets: In its first round of QE, when the Fed bought $1.25 trillion of mortgage bonds, the market for those bonds malfunctioned. The Fed bought so much that Wall Street was unable to complete an unprecedented amount of trades. Weekly failures to deliver or receive mortgage debt climbed above more than $1 trillion in 2010, compared with a weekly average of $150 billion in the five years through 2009, according to Fed data.

The open-ended nature of the current QE program could create a new shortage in the Treasury or mortgage market as the Fed’s balance sheet grows, said Stephen Stanley, the chief economist at Pierpont Securities LLC in Stamford, Connecticut.

“The longer QE goes on, the more likely it is to be more of a problem from a liquidity standpoint,” said Stanley, a former Richmond Fed economist.

If the Fed is happy with the economy’s progress, it may be an easy decision to slow their purchases. If they want to keep going full speed ahead, the falling deficits may present a challenge.

Original post is Shrinking Deficit Likely to Help Fed Reduce Bond Buys by Political Capital.

Photograph by Victor J. Blue/Bloomberg

A woman looks at bags inside a Prada SpA store in the SOHO neighborhood of New York, on May 10, 2013.

Data issued last week confirmed the economy grew from January through March at around the 2.5 percent annualized pace calculated by the Commerce Department in its advance estimate released April 26.

What the figures also confirmed is that the pickup from the fourth quarter’s 0.4 percent pace was driven more by consumer spending and less by an accumulation of inventories. That, in turn, is brightening the outlook for the second-quarter, which ends June 30 .

The April retail sales report on May 13 included revisions to March and February data that showed household spending climbed at a faster pace in the first quarter than initially calculated. It increased at about a 3.5 percent pace rather than the 3.2 percent now on the books, according to estimates by economists at JPMorgan Chase & Co. in New York.

Combined with stronger-than-forecast sales figures for April, the JPMorgan economists raised their second-quarter growth forecast that day to 2 percent from 1.5 percent.

Less than two hours after the retail sales report came news that inventories grew at a slower pace in the first quarter than initially estimated. From a growth-accounting perspective, that wiped away most of the benefit of the pickup in consumer spending since gains in stockpiling boost gross domestic product.

Revisions to factory orders on May 16 showed inventories grew at an even slower pace than thought just days earlier, chipping a bit more from first-quarter GDP.

After also taking into account what looks to be a bigger drop in commercial construction than the government first estimated, a smaller gain in business investment on equipment and software and less widening in the trade deficit, that left JPMorgan’s tracking estimate of first-quarter growth at 2.4 percent.

While it may seem little changed from the advance numbers, it’s really a world apart in terms of what constitutes a better foundation for future growth: more spending and smaller stockpiles. It also means the so-called “Spring Swoon” is looking less dramatic.

Original post is Consumer Spending Undercuts ‘Spring Swoon’ Economic Concerns by Political Capital.

Photograph by Andrew Harrer/Bloomberg

Jeffrey Zients, acting director of the Office of Management and Budget (OMB), speaks during a news conference on April 10, 2013.

That’s how much President Barack Obama’s budget proposal would trim federal budget deficits over the next decade, according to the Congressional Budget Office.

Obama’s budget would produce deficits of $5.2 trillion between fiscal 2014 and fiscal 2023, compared with $6.3 trillion under the CBO’s baseline projections, the nonpartisan budget agency said in a report May 17.

Obama’s proposals would increase the deficit in this fiscal year and in the next two, relative to the amounts the CBO projects in its baseline. The deficits would be smaller than the baseline figures between 2016 to 2023, ranging between 0.1 percent and 1.4 percent of gross domestic product.

The CBO last week projected a fiscal 2013 deficit of $642 billion, or 4 percent of GDP, the smallest shortfall in five years. The deficit was 10.1 percent of GDP in fiscal 2009.

The policy changes in Obama’s budget would increase revenues by $974 billion and reduce outlays by $172 billion, according to the CBO report. The biggest policy changes include reducing military spending in Afghanistan, limiting deductions that lower taxpayers’ income tax liability, and changing the way some benefit programs are indexed for inflation by adopting a “chained” consumer price index.

Original post is Bloomberg by the Numbers: $1.1 Trillion by Political Capital.

Photograph by Victor J. Blue/Bloomberg

Customers shop at a Macy’s Inc. store in New York.

That’s the Bloomberg Consumer Comfort Index for the week ended May 12.

The index, which is based on Americans’ opinions about the economy, the buying climate and their own finances, fell from minus 29.5 in the prior week. It can range from plus 100 to minus 100.

In a separate monthly gauge of economic expectations, 32 percent said the economy is getting worse and 31 percent said it’s getting better. The minus 1 reading was the best in five months and rose from minus 4 in April.

“Rising home values and stock prices gains may be underpinning expectations and bolstering consumer spending, which accounts for about 70 percent of the economy,” Bloomberg’s Jeanne Smialek reported yesterday. “Nonetheless, the lagged effect of higher payroll taxes are crimping the discretionary budgets of low- to middle-wage earners, preventing total demand from accelerating.”

Original post is Bloomberg by the Numbers: -30.2 by Political Capital.

Photograph by Patrick T. Fallon/Bloomberg

Dental work performed at a free health clinic for the uninsured and underinsured at the Los Angeles Sports Arena.

The cost of health care in the U.S. is rising at the slowest pace in four decades, helping curb inflation.

The consumer-price index dropped 0.4 percent in April from the prior month, a second consecutive decrease and the biggest since December 2008, figures from the Labor Department showed today. While that was due to a decrease in gasoline — prices at the pump slumped 8.1 percent last month — there was more going on beneath the surface.

Health care, long the culprit behind sustained gains in inflation, is now showing much more modest price increases. Medical expenses were little changed in April, the first time without an increase since July 2010. Taking it out a few decimal points actually showed a 0.02 percent drop, making it the biggest decline since November 1975 – just goes to show how rare even such small declines are.

Over the past six months, medical care costs were up 0.9 percent, the smallest advance over a similar period since March 1972.

Medical commodities, the term used by economists at Labor to describe things such as prescription drugs and stethoscopes, got the ball rolling when those prices peaked late last year. They were 0.7 percent cheaper in April than in August, the biggest eight-month drop in records going back to 1967.

More recently, medical services — everything from visits to your dentist and ophthalmologist to nursing-home care and hospital stays — is following suit. The cost of hospital care, for example, fell 0.7 percent in April alone, the biggest one-month drop ever.

The reason for the turnaround will require additional reporting. The consequences for fiscal and monetary policy, though, may be easier to establish.

Should it continue, it will help bring down the federal budget deficit by curbing entitlement programs including Medicare and Medicaid.

It may also influence Federal Reserve policy makers who are trying to spur growth and prevent inflation from dipping too far. Medical care accounts for about 17 percent of the Commerce Department’s personal consumption expenditure price gauge excluding food and fuel, according to Eric Green, an economist at TD Securities in New York. That’s more than twice as much as in the consumer-price index.

The Commerce Department’s gauge is the one tracked by the central bank to determine what to do next, i.e. step on the gas pedal if it’s too low or take your foot off the accelerator if it starts to pick up.

Using today’s CPI data, economists at Morgan Stanley in New York project the Commerce Department’s figures, which will be released at the end of the month, will show the core PCE index rose 1 percent over the past 12 months, the smallest year-to-year increase since records began in 1959.

The Fed’s stated goal is to keep inflation over the longer term at around 2 percent. Do I hear QE3 anyone?

Original post is Health Care Costs Slow: Inflation Curb by Political Capital.

Photograph by David Paul Morris/Bloomberg

Construction crews work on new homes being built in San Ramon, California, on April 12, 2013.

Applications to build homes climbed in April to the highest level since June 2008, helping alleviate concern that a slump the same month in construction starts on new houses would mean less support for the economy in the second half of the year.

Building permits surged 14.3 percent to a 1.02 million annualized rate, while housing starts plummeted 16.5 percent to an 853,000 pace, Commerce Department data released today showed. The annualized rate of permit applications filed by builders exceeded the pace of actual ground-breaking by the most since March 2005.

When permits outpace the rate at which foundation crews are preparing home sites with backhoes and bulldozers, it’s a signal that builders will likely stay busy in the ensuing months. And demand shows few signs of stumbling as Americans take advantage of near record-low mortgage rates.

Details of today’s report show that building permits for apartments and other multifamily homes, which are volatile month to month, surged to the highest level since June 2008. The difference between April’s annualized rates of permits and multifamily starts was also the biggest since that time.

The increase in multifamily permitting is a sign that builders have enough faith in the market to take on bigger construction projects.

Permits for single-family dwellings exceeded starts for the first time since July. While the difference is less than that of multifamily units, economists at Credit Suisse point out that some builders may be limiting construction of single-family homes in order to maximize price. Builders are after all paying plenty more for construction materials than a year ago.

Original post is Building Permits Dwarf Ground-Breaking by Political Capital.

Photograph by Victor J. Blue/Bloomberg

A customer browses shoes at a Coach Inc. store in New York.

The outlook for consumer spending may hinge on what 55 percent of American households do next.

That’s the share of respondents who noticed their paychecks had gotten smaller at the start of the year when the payroll tax reverted to the 2010 level of 6.2 percent from 4.2 percent, according to results of a survey commissioned by the Federal Reserve Bank of New York. About 13 percent said their pay increased and the rest noticed no change.

Of those that did see a reduction, a whopping 79 percent said they planned to reduce spending as a result.

The numbers bear watching because of the consistency of responses between surveys. The latest findings represent follow-up questions to a similar poll done in early 2011 that asked what consumers had done with the windfall when the tax was originally reduced.

In the latest survey, the results indicated a household earning $50,000 a year would spend about $380 of the $1,000 in tax savings. That is identical to the findings in the survey two years ago that canvassed a completely different set of households. The rest would either be used to rebuild nest eggs or pay down debt.

Now for the bad news. When the question was reversed this year, the results showed households earning $50,000 a year will cut spending by about $720.

So far, the data suggest households aren’t following through. Consumer spending climbed at a 3.2 percent annual pace in the first quarter, the best performance in two years. Revisions in the retail sales report for April released this week signal the gain will be even bigger when the quarterly figures are updated later this month.

Of course, a big chunk of the jump in spending last quarter was due to a surge in utility use as colder-than-normal temperatures prompted households to turn up the heat. Keeping warm is far from a discretionary expenditure, which means that consumers may soon redouble efforts to make up for that tax increase.

It may also be a case of respondents saying what they think the questioner wants to hear. After all, frugality is now in.

Finally, the 45 percent who said they were doing the same or better may still carry the day.

Original post is Payroll Tax Cut Most Paychecks: Survey by Political Capital.

Photograph by Chip Somodevilla/Getty Images

President Barack Obama walks across the South Lawn while departing the White House on May 13, 2013.

For all the talk about averting any default on U.S. debt, this is personal for the president.

President Barack Obama holds between $1 million and $5 million in Treasury notes, according to his personal financial disclosure released by the White House today.

He also has more than $250,000 in a JP Morgan Chase asset management checking account.

The kids have money socked away in Bright Directions College Savings Plans.

Obama was still collecting more than $100,000 in royalties last year from Crown Publishing for both his “Dreams From My Father” and “Of Thee I Sing:  A Letter to My Daughters.”

Yet the president hadn’t taken advantage of declining home mortgage interest rates, it appears — he was still carrying a home mortgage from 2005 with a 5.625 percent interest rate.

Original post is Obama’s U.S. Debt: $1 Million-Plus in Treasury Notes, Disclosure Shows by Political Capital.

Photograph by Martin Soeby/Gallery Stock

It is becoming more common for wives to be paid more than their husbands.

Women who have come out on top in the job market may not find similar success in the marriage market.

As the struggle for equal pay for equal work gains ground, there may still be psychological factors undermining the link between employment and family life.

Aversion to wives earning more than husbands could be leading to fewer weddings and more divorces, according to a National Bureau of Economic Research working paper released this month by Marianne Bertrand and Emir Kamenica, University of Chicago Booth School of Business economists, and Jessica Pan at the National University of Singapore.

Compiling results from surveys taken by the U.S. Census Bureau and by the Labor Department, the researchers came to several conclusions. One was that marriage rates decline as the probability that a woman earns more than a man increases. There was also a “sharp drop” in share of household income earned by wives after women started to earn more than husbands.

“This result suggests a potential link between two important social developments over the last several decades,” namely the increase in income earned by women and the decline in marriage rates, the report said.  For adults in the 25-to-39 age group, the marriage rate dropped to 51 percent in 2010 from 81 percent in 1970.

The authors estimate that distaste for wives out-earning their husbands explains about 23 percent of that decline.

“When a randomly chosen woman becomes more likely to earn more than a randomly chosen man, marriage rates decline,” the study found.

Additionally, the more a women’s demographic background indicates she will earn more than her husband, the less likely the wife will be in the labor force, according to the report. And, if she is working, she will probably earn less than her potential would dictate.

Nevertheless, it is becoming more common for wives to be paid more than their husbands. Twenty-six percent of couples whose members are both in the 18-to-65 age range fall into that that category, according to a survey taken from 2008 to 2010.

Therein lies another negative: couples where a wife earns more are less satisfied with their marriage and are more likely to divorce, the study found, based on panel data from the National Survey of Families and Households.

Earning more doesn’t mean wives do fewer dishes, either. Women who make more than their husbands dedicate more time to non-market work than their husbands — and the gap is larger than in couples where the woman earns less.

“One explanation for the observed pattern is that, in couples where the wife earns more than the husband, the `threatening’ wife takes on a greater share of housework so as to assuage the `threatened’ husband’s unease with the situation,” the authors write.

Original post is Higher-Paid Women Less-Married, More-Divorced by Political Capital.