Midday News Recap: Crude Slides, USD Firms, Fed's Plosser Sounds Hawkish Bell

News Recap | Written by CEP News | Jul 22 08 16:17 GMT |

(CEP News) - Hawkish comments from Philadelphia Fed President Charles Plosser and an ongoing campaign to pass GSE legislation from U.S. Treasury Secretary Henry Paulson highlighted the economic events of the day as crude oil continued its downtrend, selling off as much as five dollars while the U.S. dollar firmed. Crude oil is down as much as five dollars to an intraday low of $126.36 despite concerns that Tropical Storm Dolly could be upgraded to hurricane status. Meanwhile, the greenback surged forth, picking up as much as one cent against the euro and Canadian dollar. Inflation in the U.S. is "too high" and inconsistent with the goals of the Federal Reserve, whose accommodative policy must be reversed, said Philadelphia Fed President Charles Plosser on Tuesday. Plosser, a well-known inflation hawk, said monetary policy is too loose and the Fed will likely have to hike rates before an economic turnaround has taken place. "Keeping policy too accommodative for too long worsens our inflation problem. Inflation is already too high and inconsistent with our goal of - and responsibility to ensure - price stability. We will need to reverse course - the exact timing depends on how the economy evolves, but I anticipate the reversal will need to be started sooner rather than later. And I believe it will likely need to begin before either the labour market or the financial markets have completely turned around," he said in Pennsylvania. Speaking at the New York Public Library, U.S. Treasury Secretary Henry Paulson said Fannie Mae and Freddie Mac are vital to the U.S. financial system and that he remains confident Congress will pass GSE legislation sometime this week. "Because of their size and scope, Fannie and Freddie stability is critical to financial market stability," said Paulson. "Their continued activity is central to the speed with which we emerge from this housing correction and remove the underlying uncertainty in out financial markets and financial institutions." The Treasury Secretary once again reminded attendees that he did not expect Fannie and Freddie to access the unlimited line of credit Paulson wants to extend to the institutions, which is intended to be a strong signal to the markets. Higher gasoline prices fuelled a monthly increase in retail sales of 0.4% to $35.8 billion in May, Statistics Canada reported Tuesday. The statistical agency reported the seventh increase in retail sales in eight months was primarily due to the 8.8% increase in gasoline prices in May and said that if price effects were removed, retail sales in constant dollars only grew by 0.1%. Removing gasoline sales also results in a monthly sales increase of only 0.1%. In current dollars, retail sales grew in five of the eight retail sectors tracked by Statistics Canada, with the strongest growth in the auto sector, which grew 1.1%, and in building and outdoor home supplies stores, which saw sales rise 0.7%. Excluding auto sales, retail sales rose 0.4% month-over-month. Manufacturing activity in the U.S. Mid-Atlantic states continued to fall in July, against expectations of some moderation after a sharp decline in June. The Richmond Fed's Fifth District Manufacturing Activity index decreased to -16 from the previous month's -12 reading. The consensus was looking for reading of -9. U.S. house prices fell 0.3% month-over-month in May following April's 0.8% pullback, the Office of Federal Housing Enterprise Oversight (OFHEO) reported Tuesday. The consensus had been looking for a 0.8% month-over-month pullback in May. "It is very hard to draw conclusions from a one-month number, especially in these uncertain times; but the numbers in the Pacific, East and West North Central Divisions may be good signs," said OFHEO Director James B. Lockhart in the report. "The HPI is based upon mortgages made by Fannie Mae and Freddie Mac, which, on average, are generally higher quality than those in other indexes." U.S. retail sales advanced on a year-over-year basis in the week ending July 19, according to a weekly survey from the International Council of Shopping Centers (ICSC) and UBS Securities, which showed a 2.5% increase, and a Johnson Redbook retail survey, which recorded a 2.6% gain in the week. The annual gain in the ICS-UBSC report is the largest since late December, while on a week-over-week basis, sales showed a 0.1% advance following a 0.2% advance in the previous week. The U.S. looks to be going through a mild recession and is in for a sluggish recovery, according to a new economic outlook released by the Conference Board of Canada (CBOC). "The U.S. economy is undergoing probably its biggest financial crisis since the depression yet the real economy is still growing," said CBOC principal economist Kip Beckman. "Not by much. But we haven't had a negative quarter yet and it looks like the second quarter is going to come in at maybe at least 2% growth. So all these people saying there's a recession are going to have to answer for that." Beckman forecasts U.S. real GDP will increase by 1.8% in 2008 and ramp up to 2.4% in 2009. However, he says it will be some time before the U.S. is operating at its full capacity. The number of Canadians receiving regular Employment Insurance (EI) benefits dropped 1.2% to 457,020 in May. Regular benefit payments totalled $706.9 million in the month. Compared to the same period a year ago, the number of Canadians receiving regular EI benefits was down 3.2% in May. The decline was more pronounced among women, with a 4.7% drop against the period a year ago compared to a 2.3% decline in male recipients. Speaking at the Brookings Institute in Washington, D.C. on Tuesday, IMF Deputy Managing Director John Lipsky said deteriorating inflation expectations pose serious global risks. Speaking on the topic of perspectives on the global economic landscape, Lipsky said monetary policy's first goal is to limit inflation. Cooler temperatures in many areas of Canada led to an 8.1% year-over-year increase in May gas sales, according to a report issued by Statistics Canada on Tuesday. Natural gas volumes totalled 5,006,465 cubic metres in May. On a year-to-date basis, sales in May were down 18.6% from the same five-month period in 2007, according to the report. By Erik Kevin Franco, efranco@economicnews.caThis email address is being protected from spam bots, you need Javascript enabled to view it with contributions from Sean McKibbon, smckibbon@economicnews.caThis email address is being protected from spam bots, you need Javascript enabled to view it , Patrick McGee, pmcgee@economicnews.caThis email address is being protected from spam bots, you need Javascript enabled to view it , and Steve Stecyk, sstecyk@economicnews.caThis email address is being protected from spam bots, you need Javascript enabled to view it , edited by Nancy Girgis, ngirgis@economicnews.caThis email address is being protected from spam bots, you need Javascript enabled to view it CEP Newswires - CEP News © 2008. All Rights Reserved. www.economicnews.ca The Copying, Broadcast, Republication or Redistribution of CEP News Content is Expressly Prohibited Without the Prior Written Consent of CEP News. 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