NEW YORK (AP) — The stock market appears to be regaining its health after a weak first quarter, but a full recovery may be far off if upcoming data suggest inflation is a growing concern for the Federal Reserve.
Before this week’s inflation data arrive, though, stock market investors likely will react today to the stronger-than-expected employment report released by the Labor Department on Friday, a stock market holiday. The data showed non-farm payrolls rose by 180,000, higher than the 135,000 that had been expected. The nation’s unemployment rate fell to 4.4 percent, a five-month low.
Bond prices, which move in the opposite direction from yields, fell sharply in a holiday-shortened session Friday on the prospects that the economy is healthier than some had envisioned.
The employment figures seemed to underscore a notion that while the economy is cooling, it isn’t hurtling toward recession. In addition to the jobs report, data have shown consumer spending is climbing, sales of existing homes are holding up and the manufacturing and service sectors are expanding slowly.
Still, investors fear high inflation could prevent the Fed from lowering interest rates later this year, or even prompt a rate increase. Last month, stocks soared after the Fed released a statement that appeared to open up the possibility of lower rates; this Wednesday, when minutes of its most recent meeting are released, stocks could take a hit if they suggest the central bank is more anxious about inflation than it had let on.
The Labor Department’s Producer Price Index, which measures the cost of wholesale goods, also will offer clues about the pace of inflation. The March index is expected to come in at 0.6 percent Friday after rising 1.3 percent in February. Analysts forecast that the core index, which strips out food and energy prices, will rise 0.2 percent for March after advancing 0.4 percent in February.
The Fed has kept rates on hold since August. A rate cut could boost consumer spending and aid the ailing housing market by making mortgages cheaper.
Last week, signs that U.S. consumers are keeping home sales afloat, despite struggling subprime mortgage lenders, encouraged investors. The Dow Jones industrials rose 1.67 percent for the week, the Standard & Poor’s 500 index advanced 1.61 percent and the Nasdaq composite index rose 2.05 percent.
Tomorrow, Philadelphia Fed President Charles Plosser plans to speak at the University of Delaware.
On Wednesday, Chicago Fed President Michael Moskow is scheduled to give a speech on the outlook for the economy.
On Thursday, the Commerce Department reports on import and export prices for March.
The Commerce Department will report on the February trade balance on Friday. Analysts predict the gap will widen to $60.5 billion from $59.1 billion the previous month.
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