OUTLOOK U.S. data to show inflation contained, but FOMC rate cut still likely

WASHINGTON (AFX) - U.S. economic indicators to be released in the coming week will show inflation at a stable level, while March retail sales are expected to be flat, but the data will be overshadowed by the increased likelihood of an inter-meeting interest rate cut by the Federal Open Market Committee (FOMC), economists said. 	    Economists who spoke to AFX News said Friday's surprise decline in March nonfarm payrolls by 86,000 could prompt the FOMC to implement a 50 basis points cut in the key Fed funds rate next week amid fears that mounting layoffs could spark a economy-wide recession. 	    The manufacturing sector is already in recession, and concerns are increasing that other sectors of the economy could now become just as badly afflicted as manufacturing. 	    "We continue to believe here that we'll escape without a recession, but just barely," said Carol Stone, deputy chief economist at Nomura Securities International in New York. 	    Stone added that last week's data, particularly the surprise drop in nonfarm payrolls, "re-emphasises the prospect for an inter-meeting cut, and if that's 50 (basis points), and if we get 50 more at the May meeting then we would be down to 4 percent." 	    The FOMC is scheduled to meet May 15. 	    A report by Goldman Sachs & Co, based on a set of fifteen economic and financial indicators including labour and financial market conditions, shows a 60 pct probability of a U.S. recession within six months. 	    Goldman economist Jan Hatzius said in the note that "the results underscore that it will take aggressive Fed easing -- which we are forecasting -- to avoid a slump." 	    Behind the FOMC focus, economists said March producer prices, and the March retail sales report, both due Thursday, are likely to attract the most attention. Retail sales are likely to give some indication towards second-quarter GDP growth. 	    Next week's data are not expected to raise too many concerns, as energy prices are likely to have been well contained, said Robert McGee, chief economist at Tokai Bank Ltd in New York. 	    However, the Department of Energy warned in a report Friday that going forward: "U.S. crude oil and gasoline inventories are below normal and are expected to remain low through the driving season and into the fall. Therefore, price volatility remains a possibility this summer." 	    Last year's high oil prices have abated notably in recent months, but concerns that OPEC could announce output cuts to keep prices robust and fears of gasoline price spikes led Federal Reserve Chairman Alan Greenspan to say: "I can't say that we have a (energy) crisis, but we certainly have something which is going to impact on our attention quite vividly for quite a good number of quarters in front of us and perhaps a number of years." 	    Greenspan made the remarks in Congressional testimony Wednesday. 	    "I think the big question is whether the negative employment report will move them (the FOMC) to take some action. I think that will weigh more than any of the numbers next week," McGee said adding that he will not be surprised of an inter-meeting rate cut of 50 basis points.	    Nomura's Stone added that: "Retail sales can often surprise, and there will be revisions to the prior month (February). The impact on market sentiment generally may not be great, but markets may move that day because volume is likely to be thin ahead of the weekend." 	    U.S. financial markets will be closed Friday in observance of the Easter holiday weekend. 	    Brian Wesbury, chief economist at Chicago-based Griffin, Kubik, Stephens & Thompson Inc said in a note to clients: "In 1978, Alfred Kahn, an economic advisor to President Carter was admonished for using the 'R' word. So, he started calling the recession a 'banana.' We have no similar compulsion or restraint. The U.S. is in recession today and we believe it began in the fourth quarter." 	    Wesbury urged the FOMC to cut rates now, and he cautioned that the longer it waits to do so, "the worse it will be for stocks and the economy." 	    Aside from the data, market-watchers are also likely to hone in on General Electric Co on Thursday as the company releases its eagerly awaited first-quarter earnings. 	    Following are the consensus forecasts of Wall Street economists for data to be released next week: 	    MARCH IMPORT PRICES, Wednesday (8.30 am): Economists expect U.S. import prices to remain flat after prices increased in line with expectations by 0.1 pct in February, marking the first rise in the category since September. 	    A rise in imported oil prices sparked February's gain. 	    Excluding oil, import prices fell unexpectedly by 0.1 pct in February.             WEEKLY JOBLESS CLAIMS, Thursday (8.30 am): Forecasts indicate that initial claims for regular state unemployment benefits will moderate marginally by 2,000 to 381,000 for the week ended April 7, after claims rose above expectations by 18,000 to a seasonally-adjusted 383,000 for the week ended March 31 from the previous week. 	    The 18,000 rise marks the highest level of initial jobless claims since July 1998. 	    MARCH PPI, Thursday (8.30 am): Economists said the March headline producer prices will remain flat after PPI rose in line with forecasts by 0.1 pct in February. 	    The core rate of PPI, which excludes volatile food and energy prices, is expected to rise by 0.1 pct. 	    The PPI core rate fell -- by its largest decline since Aug 1993 -- below expectations to 0.3 pct in February. 	    MARCH RETAIL SALES, Thursday (8.30 am): Economists expect March retail sales to remain flat after sales fell unexpectedly by 0.2 pct in February, marking the first drop in the indicator in three months. 	    Excluding automobiles, March sales are forecast to rise by 0.2 pct after falling 0.3 pct in the previous month. 	    FEB BUSINESS INVENTORIES, Friday (8.30 am): Economists said February business inventories will show a 0.2 pct rise after inventories rose above expectations by 0.4 pct in January, while business sales were unchanged. 	    UNIVERSITY OF MICHIGAN APRIL CONSUMER SENTIMENT, Friday (10.00 am): Economists said the University of Michigan's initial consumer sentiment index for April will decline slightly to 91.3 on the month. The index fell below expectations to 91.5 in the final March report. 

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