Economic Reports Add to Hopes for Rate Cuts

The government released three new reports Thursday that all help the case for the Federal Reserve to continue cutting interest rates.

The Commerce Department said retail sales across the United States declined 0.2% in March, while market analysts had looked for March sales to come in about unchanged.

Since the consumer sector makes up two-thirds of economic activity, and trucks have to haul goods from factories or ports to stock store shelves, the weakness in sales will weigh down shipments.

The Labor Department said wholesale prices fell 0.1% in March, showing that overall producer price inflation pressures were even weaker than the 0.1% gain that analysts had expected.

That report implies that the slumping economy faces little near-term inflation pressure bubbling up from factories or suppliers of basic materials. To many observers, that means the Fed still has plenty of room to ease interest rates without fearing that it will fuel inflation any time soon.

Labor also said that new claims for unemployment insurance benefits rose again in the latest week, to put total claims at their highest level since March 1996. More ominously, jobless claims are also in a range associated with the start of the 1990-91 recession, news reports noted.

So, together, the reports give more evidence that the hugely important retailing sector is hurting, which hurts truck shipments from warehouses to restock store inventories and can further depress new orders for factory goods.

The reports show that wholesale prices were actually contracting last month, another sign that weak demand from factories and retail stores is curbing overall inflation risks. That point also came out of Wednesday’s report from Labor that import prices for March plunged 1.6%.

Ironically, the improved price news comes at a time that one of the biggest single costs for trucking – fuel – has begun to rise again after eight weeks of decline. Both diesel and gasoline prices moved up over the past two weeks.

Some market analysts are saying the data already justifies another immediate rate cut by the Fed, which has implemented three large half-point cuts since the year began but has still seen the economy limp in or near recession levels.

However, the Fed could wait until its next scheduled policy meeting on May 15.

Any cuts in interest rates can help some truckers right away, by slicing variable-rate interest payments on equipment debt. But the greater hope is that these rate cuts will stimulate general economic activity, in which freight shipments would grow.

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