U.S. Data Offers Muddled Outlook for Recovery

The 1.3 percent decline marked the second consecutive contraction, led downward by a decline in the price of oil, production equipment, and consumer goods. As input prices continue to fall, coupled with a relatively stronger Greenback and a sustained level of increased ‘slack’ in the economy, inflationary pressures are likely to continue to subside over the medium-term. In a separate report, the Commerce Department showed that Retail Sales fell in June by 0.5 percent. Over the next few days, when the Labor Department issues its Producer Price Index (July 15) and Consumer Price Index (July 16), a more lucid picture of the recovery should form. However, according to forecasts compiled by Bloomberg, both indices are expected to contract by 0.1 percent for the month of June. While it would be preferential for the recovery to see slight upward price pressure, such indicators will allow the Federal Reserve to continue its period of sustained depressed interest rates. Going forward, it should be expected that, as inflation remains contained over the medium-term, the Federal Open Market Committee will hold its benchmark interest rate close to zero into 2011 to help boost economic growth.