Policy-makers may have more work to do

Yesterday's economic news from the US may pose a bit of a dilemma for the Federal Reserve. From Reuters:

The headline figure in the Philadelphia Federal Reserve's business activity index rose...to 14.4 in May from 13.2 in April...

But the survey's jobs component slumped to 1.1, its weakest level since November 2003, from 21.7 in April. A measure of prices paid by manufacturers jumped to 55.3 from 29.0, its strongest since October 2005...

The Philadelphia survey's new orders index, a gauge of future growth, fell to 2.7 in May from 12.2 in April.

The Reuters report also highlighted a surge in first-time claims for state unemployment insurance benefits last week but mainly due to a partial government shutdown in Puerto Rico.

But corroborating evidence of a slowdown in the US economy comes from the Conference Board.

The Conference Board announced today that the U.S. leading index decreased 0.1 percent, the coincident index increased 0.2 percent and the lagging index increased 0.3 percent in April... The current behavior of the leading index suggests economic growth should continue moderately in the near term.

And as for inflation, Fed members seems to agree that there is reason for concern. From Reuters:

"Containing inflation has to be our primary focus," said Richmond Fed Bank President Jeffrey Lacker...

"The inflation outlook right now is at the borderline of acceptable, and perhaps even beyond," Lacker, a voting member of the central bank's FOMC this year, told reporters after speaking to the Conference of State Bank Supervisors in Norfolk, Virginia.

St. Louis Fed Bank President William Poole, a non-voting FOMC member this year, later said at a Global Interdependence Center luncheon in Philadelphia that inflation risks were "tilted to the upside" even though he expects inflation to be contained and healthy growth to prevail...

Earlier, Fed Chairman Ben Bernanke mostly steered clear of questions about the economy at a Chicago Fed conference on bank regulation, but said the housing market is "clearly weakening."

While the Federal Reserve has to steer between worries about inflation and economic slowdown, the concern for policy-makers in China appears more straightforward, as industrial output continued to grow strongly in April:

China's industrial output rose 16.6 percent in April from a year ago, with analysts pointing to a continued rise in domestic demand and sustained export growth...

The growth in production output in April was slightly lower than growth in March, during which output increased 17.8 percent year-on-year, and about the same as the 16.7 percent output growth in the first quarter.

...as does fixed asset investment.

China's urban fixed asset investment rose 29.6 percent in the first four months of 2006, official figures show, as the government and analysts said more must be done to cool the booming economy...

In the first three months of the year, China's fixed asset investments had increased 27.7 percent compared with the same period in 2005, those figures being already well above Beijing's annual target for investment growth of 18 percent.

And even the Bank of England may have to start tightening after the latest UK retail sales data.

The Office for National Statistics said sales rose by 0.6 percent in April after an upwardly revised 0.9 percent increase in March. Annual growth, at 3.0 percent, was the strongest since December and topped forecasts for a reading of 2.6 percent.