Consumer Prices Edge Up, Investors Gnash Their Teeth

The Consumer Price Index posts its smallest increase since November; homebuilding sentiment is gloomy; and overseas visits to the U.S. increased in the first quarter.

By Dees Stribling, Contributing Editor

Last year the worry du jour was deflation. Earlier this year, that worry turned to the specter of inflation. Now the term “stagflation,” an ungainly creation of the 1970s, is being dusted off in the wake of the latest Consumer Price Index reading from the U.S. Department of Labor, which said that consumer prices rose 0.2 percent in May. Though the CPI is up 3.6 percent year-over-year, the monthly increase was the smallest since November.

In a reversal of the usual situation, “core” inflation–which disregards such luxuries as gas and food–was up 0.3 percent for the month. Lately core inflation has been rising more slowly than overall inflation, as food and especially gas prices rise, but the upward trend in gas prices has stopped. Compared with a year ago, core inflation is a fairly mild 1.5 percent.

The price of oil has been trending down for a short while now, but only long enough to have a minor impact on the government’s CPI calculations for May. On Wednesday, crude-oil futures dropped nearly 5 percent, as investors became nervous indeed over increased Saudi production and depressed demand for oil; the sluggishness of economies in various parts of the world; and the Greek-debt time bomb ticking ever more loudly.

Homebuilders feel even worse in June

Could homebuilders be any gloomier? It seems that they can, with the National Association of Home Builders’ Homebuilders/Wells Fargo Housing Market Index, which measures current sentiment, edging down to 13 in mid-June, compared with 16 in mid-May. Many are the woes of the homebuilding industry, but Bob Nielsen, chairman of the trade group, summed up the latest vexations in a statement: namely, it’s “extremely difficult to construct a new home and sell it at a price that covers the costs.”

Buyers for new product are a little hard to scare up as well. Many are stuck with homes they might sell in healthier times to trade up to new homes, but depressed prices and tight lending requirements represent large obstacles to that process. Besides, everyone’s still worried about the economy–call it stagflation or simply a sluggish, uneven and uncertain recovery.

The homebuilders’ forward-looking index–which asks respondents about their feelings about the business in six months–didn’t fare much better than the current index, dropping four points to 15. Both the current and forward-looking NAHB indexes are the sort in which 50 or more indicates positive sentiment. The last time the indexes topped 50 was in the spring of 2006, now barely remembered days of wine and roses and easy money and McMansions.

Overseas visits to U.S. increase in first quarter

Various other economic indicators came out on Wednesday as well, most not good (such as the Empire State Manufacturing Survey), but a less-noticed set of numbers offered a bit of good news to at least one U.S. industry: travel and tourism. The U.S. Department of Commerce reported that for the first three months of 2011, visits by foreigners to the United States (totaling 12.9 million) was up 2 percent compared to the same period in 2010, though visitations were flat when comparing this March with the same month in 2010.

Who’s coming to the United States? More Canadians than before, for one, armed with strong loonies: 5 percent more in the first quarter of 2011 than during the same quarter a year earlier. But compared with other nationalities, that’s only a trickle. Some 53 percent more Brazilians came to the United States compared with the first quarter of last year. Also comparing quarters, visitations by the French were up 24 percent; by the mainland Chinese, up 22 percent; and by the Australians, up 14 percent. Visits by Germans, Britons, Mexicans and especially the Japanese were down, however.

Three ports of entry greeted 41 percent of all international travelers to the United States during 1Q11–New York, Miami and Los Angeles. The top 15 U.S. ports of entry accounted for 84 percent of all visits. Not too many foreigners are hopping planes for Fargo, Walla-Walla or Bangor, Maine, it seems.

Wall Street apparently didn’t much care for the CPI numbers or Greek riots about austerity on Wednesday, yo-yoing back down after signal gains on Tuesday. The Dow Jones Industrial Average lost 178.84 points, or 1.48 percent, and dropped back below 12,000. The S&P 500 declined 1.74 percent, and the Nasdaq ventured into negative territory to the tune of 1.76 percent.