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FEDERAL HOME LOAN BANK OF NEW YORK SEES GAINS IN PRODUCTIVITY

 FEDERAL HOME LOAN BANK OF NEW YORK SEES GAINS IN PRODUCTIVITY
 NEW YORK, May 18 /PRNewswire/ -- Eugene J. Sherman, chief economist of the Federal Home Loan Bank of New York, finds several data releases during the latest week favorable for the fixed-income market. However, he finds most gratifying the figures that were not reported -- for productivity. But they can be deduced. Industrial production increased 0.5 percent in April and 1.5 percent over the past three months. During the same three-month period payroll employment in goods-producing industries actually declined slightly, while the index of aggregate weekly hours rose just 1 percent. The difference, 0.5 percent faster increase in production than hours worked, is attributable to productivity. That is 2 percent at an annual rate. This is consistent with our view that increases in unit labor costs (total labor costs less productivity) this year and next will be held below 2 percent. It will be recalled that total compensation rates presently are running at 3 percent or slightly over. Rising production and productivity are essential to a sustainable expansion with low inflation. The data are providing evidence that the economy is moving in that direction.
 Also favorable for the inflation outlook were reports on producer and consumer prices for April. Producer prices rose 0.2 percent both overall and excluding food and energy. Year-over-year the overall index was up a mere 0.9 percent. The indices for intermediate and crude goods continued to show minor variation around a flat trend. Consumer prices rose 0.2 percent and were up 3.2 percent on a year-over-year basis. The index excluding food and energy was less benign, rising 0.3 percent. But, it should be noted that the consumer price index is the most imperfect of the various measures of inflation. The CPI market basket makes no allowance for changes in components or improvements in quality and, therefore, usually overstates the actual inflation rate.
 Separately, retail sales in April rebounded nicely after a falloff in March. These sales have now risen in four of the past five months, and rapidly in January, February and April. While not booming, the evidence of a mild recovery in consumer spending is accumulating.
 So, with regard to inflation and the economy, all is in order. Moderate growth continues and conditions for further growth are in place. At the same time, inflation remains muted. With the two broad money supply aggregates growing at just above and just below the lower band of their target ranges, it would seem that monetary conditions will continue to restrain inflationary pressures. If anything, there is a risk that money supply is growing too slowly and could restrain economic growth as well. Under these circumstances, the Federal Reserve may be inclined to lean toward further ease in its forthcoming policy-setting meeting. But, the Fed is unlikely to ease further unless intermediate and long-term interest rates continue downward and, by so doing, signal declining inflationary expectations.
 The Federal Home Loan Bank of New York provides low-cost financing and other banking services to stockholding institutions in support of affordable housing for Americans in New York, New Jersey, Puerto Rico and the U.S. Virgin Islands.
 The Federal Home Loan Banks America's housing banks.
 -0- 5/18/92
 /CONTACT: Eugene J. Sherman of Federal Home Loan Bank of New York, 212-912-4605/ CO: Federal Home Loan Bank of New York ST: New York IN: FIN SU: ECO


PS -- NY004 -- 1165 05/18/92 09:30 EDT
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Publication:PR Newswire
Date:May 18, 1992
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