Producer prices down in June, output up
WASHINGTON (Reuters) - U.S. producer prices declined in June while industrial output bounced back, reports on Tuesday showed, setting a favorable tone for Federal Reserve Chairman Ben Bernanke's testimony on the economy on Wednesday.
The separate reports from the Labor Department and the Fed were among a welter of data that implied the economy was shaking off the impact of a distressed housing sector and potentially adding steam after a soft first quarter.
The Labor Department said its producer price index that measures prices paid at the farm gate and factory door fell 0.2 percent after a 0.9 percent May jump.
But core prices, which strip out food and energy costs, climbed 0.3 percent after gaining 0.2 percent in May, weakening U.S. government debt prices as investors feared it reduced chances for cuts in official interest rates.
The Fed said output by U.S. factories, mines and utilities grew 0.5 percent in June, rebounding from a 0.1 percent May fall partly on a surge in production of new cars and trucks.
"Manufacturing in the United States is on the rebound," said Lynn Reaser, chief economist for Bank of America's investment strategies group in Boston. "Companies have worked through their inventories."
But the housing sector still faces daunting problems, underlined on Tuesday by a report from the National Association of Home Builders that showed sentiment at its lowest level since January 1991. The builders' group said the market for single-family homes was "still in a correction process" after a strong performance between 2003 and 2005.
HOUSING A THREAT
The president of the Kansas City regional Fed bank, Thomas Hoenig, told a Nebraska audience that a weak housing sector was a threat to the overall economy, especially if it causes consumers to pull back on spending.
On balance, he said there was "a very good outlook" for the U.S. economy and predicted growth at a rate modestly closer to its potential of 3 percent for the remainder of 2007. Growth during the first quarter was at an anemic 0.7 percent rate.
Stock prices gained on favorable earnings reports from big companies including Coca-Cola Co. (KO.N) and Merrill Lynch & Co. MER.N and on prospects for further profit gains.
The Dow Jones industrial average .DJI rose 0.15 percent to end at 13,971.55 after briefly topped 14,000 for the first time. The Nasdaq Composite Index .IXIC rose 0.55 percent to close at 2,712.29.
But U.S. government debt prices suffered as investor interest moved toward equities and amid fears that higher core prices meant the Fed will not reduce interest rates soon.
The benchmark 10-year U.S. Treasury note's price US10YT=RR eased 5/32 and its yield, which moves inversely to price, rose to 5.07 percent from 5.04 percent late Monday.
Prices for 30-year bonds fell 10/32 to yield 5.15 percent. Continued...
