House Prices Rise Again, but the Pace Could Slow

In 2013’s last glimpse at the housing market, figures released on Tuesday showed that home prices in major metro areas kept rising in October. Year-over-year, prices were up 13.6 percent, the biggest gain in more than seven years.

After plummeting during the housing bust, prices have increased steadily since the spring of 2012. Prices in 20 major American metro areas increased a modest 0.2 percent between September and October, without seasonal adjustment, evidence that the quick rebound in prices is slowing, according to the closely watched S&P/Case-Shiller data. Higher mortgage rates might continue to slow the pace of improvement going forward, analysts say.

Nationally, the increase in home prices is moderating, the S&P/Case-Shiller analysis said. Prices decreased in nine metro areas between September and October, including Denver, Chicago and Washington, whereas just one saw price decreases between August and September.

“Monthly numbers show we are living on borrowed time and the boom is fading,” said David M. Blitzer of S&P Dow Jones Indices in an analysis of the new data. A big question, he said, is how quickly the Federal Reserve pulls back from its extraordinary efforts to keep rates low.

“The key economic question facing housing is the Fed’s future course to scale back quantitative easing and how this will affect mortgage rates,” Mr. Blitzer said. “Other housing data paint a mixed picture suggesting that we may be close to the peak gains in prices.” He added: “Most forecasts for home prices point to single-digit growth in 2014.”

In many metro areas where prices declined sharply — particularly those encompassing Sun Belt and Rust Belt cities like Phoenix, Las Vegas and Detroit — similarly sharp rebounds followed. But generally, prices have not touched their pre-bust heights, with prices across the country remaining about 20 percent lower, the S&P/Case-Shiller data show. In Dallas and Denver, however, prices have hit new peaks, the report said.

Many economists expect price increases to moderate next year, with higher prices and higher mortgage costs making homes less affordable, even though the labor market recovery might pick up some steam and inventory might increase in some areas.

In December, the Fed said that improving economic conditions warranted the central bank starting to ease up on its stimulus efforts. The Fed said it would cut its monthly purchases of Treasury and mortgage-backed securities to $75 billion a month from $85 billion a month.

“Even after this reduction, we will be still expanding our holdings of longer-term securities at a rapid pace,” Ben S. Bernanke, the Fed chairman, said at a December news conference, his last before Janet L. Yellen takes over, pending Senate confirmation. “Our sizable and still-increasing holdings will continue to put downward pressure on longer-term interest rates, support mortgage markets, and make financial conditions more accommodative, which in turn should promote further progress in the labor market.”

But mortgage rates have risen, and the pace of sales has slowed in many metro areas. According to the National Association of Realtors, the government-backed mortgage finance company, existing-home sales dropped 4.3 percent to a seasonally adjusted annual rate of 4.9 million in November. New-home sales dropped 2.1 percent to a seasonally adjusted annual rate of 464,000, the Census Bureau said.

“While most housing markets still remain affordable, rising mortgage rates and rising house prices over the past six months are making it more challenging for the typical family to purchase a home without stretching beyond their means,” said Frank Nothaft, chief economist at Freddie Mac, in an analysis. “We expect mortgage rates to rise over the coming year, so it’s critical we start to see more job gains and income growth in the coming year.”

In some areas, limited housing supply has pushed prices high. “Home sales are hurt by higher mortgage interest rates, constrained inventory and continuing tight credit,” said Lawrence Yun of the National Association of Realtors, in an analysis. “There is a pent-up demand for both rental and owner-occupied housing as household formation will inevitably burst out, but the bottleneck is in limited housing supply, due to the slow recovery in new home construction.”

In a separate report released Tuesday, the Conference Board, a research group, said that consumer confidence jumped to 78.1 in December, from 72.0 in November, with sentiment about current economic conditions reaching its highest level since the spring of 2008. “Despite the many challenges throughout 2013, consumers are in better spirits today than when the year began,” said Lynn Franco, director of economic indicators at the Conference Board.

Many economists do expect jobs and income growth to improve, and to have a resulting effect on housing. “We expect that the improving employment picture next year will be accompanied by a sustained increase in interest rates, which in turn will roll over into the mortgage market,” said Doug Duncan, chief economist at Fannie Mae. He said the housing recovery might continue on a “modest upward trend.”

In the S&P/Case-Shiller report, a survey of 10 major metro areas, as well as a broader survey of 20 major metro areas, showed year-on-year price increases of about 13.6 percent in October, the biggest such rise since early 2006.

Economists have said foreclosures and short sales are making up a smaller proportion of sales, making housing price gains look larger, since those homes can trade at steep discounts.

Today's Economist: Health Care Prices Move to Center Stage

Common Sense: Record Prices Mask a Tepid Art Market

The art market would seem to be going through the roof. But is it?

Despite the headlines and the hyperbolic enthusiasm of many auctioneers and dealers, the broad market for fine art is in the doldrums, according to experts who track sales data. Many works are selling near or below their low estimates or failing to sell at all.

As measured by the Mei Moses World All Art Index, a widely cited benchmark, the market for fine art declined 3.3 percent in 2012, and gained 2.2 percent through November, even with the recent record-setting sales. Strip out traditional Chinese art, the value of which has been surging for years thanks to the interest of wealthy Chinese buyers, and the performance would be much worse.

By comparison, the Standard & Poor's 500-stock index gained 13.4 percent in 2012 and is up more than 27 percent so far this year.

At Sotheby’s, where “Silver Car Crash” set a record for Warhol, another image of a car crash, this one in green called “5 Deaths on Turquoise,” sold for just a little more than $7 million. A Warhol portrait of Liz Taylor with a yellow background went for $18 million (not counting commissions), below its $20 million to $30 million estimate. And at Sotheby’s, another Rockwell with a religious theme, “Walking to Church,” sold for just $2.8 million before the buyer’s commission, below its $3 million to $5 million estimate. (Estimates don’t include commissions.)

But at least they sold. Sanford Robinson Gifford’s Civil War masterpiece, “Sunday Morning in the Camp of the Seventh Regiment,” which was on loan to the White House and had hung in the Oval Office for over 20 years, didn’t sell at this week’s auction at Christie’s, which must have come as a shock to New York’s Union League Club, which had owned the painting since 1871. It was estimated to fetch $3 million to $5 million.

A Christie’s spokeswoman said afterward that “there was steady client interest” in the painting before the auction, “given the painting’s exceptional rarity and historical significance.” But at the auction, the bidding “simply did not meet the reserve price.” The spokeswoman, who declined to be named, citing Christie’s policy, added that interest in the work was still “very much alive.”

What explains the sharp gap between perception and reality?

“What we’ve seen is that the explosive prices represent only a tiny, tiny subset of lots,” said David Kusin, a former Metropolitan Museum of Art curator who also worked on Wall Street and now runs Kusin & Company, a consulting firm in Dallas that specializes in the economics of the art market. “They get all the press, but we’ve seen relatively stable hammer prices in most categories over the past few years.”

And just two distinct categories have pushed up the averages.

“Postwar, contemporary art — artists active from 1950 to the present — which includes Francis Bacon, Jackson Pollock, has been doing extremely well for the past 25 years,” Michael Moses, a retired professor of economics at New York University’s Stern School of Business and a co-founder of the Mei Moses Art Index, told me this week. “And traditional Chinese art — works created before 1900 — has been doing even better.”

Mr. Moses said his data indicated that traditional Chinese art had gained a compounded annualized rate of return for the 10 years ending in 2012 of 15.5 percent. Postwar and contemporary art gained 11.6 percent. By contrast, old master paintings gained only 3.3 percent and American paintings just 1 percent. And the overall index gained 7.4 percent.

Some find the whole notion of an art market to be distasteful. Michael Findlay, author of “The Value of Art,” and a director at the Acquavella Galleries in New York, said: “What I believe in is the social and aesthetic value of art. We live in a society where everything is so monetized, the only way people can talk about art is in terms of money.”

Consumer Prices Rise in Japan, Suggesting Stronger Growth

TOKYO — Japan’s economy is gaining momentum, data for October showed, with consumer prices excluding food and energy rising 0.3 percent from a year earlier. It was the biggest gain since 1998, but household spending remained tepid as incomes slipped from the same month a year before.

The various indicators released on Friday suggested that the very loose monetary policy and stimulus strategy of Prime Minister Shinzo Abe are helping end Japan’s long bout of deflation.

Industrial output rose 0.5 percent in October, the second monthly advance, driven by increases in the production of machinery used to make computer chips and other industrial products, plastics and cellphones.

The government reported that the core consumer price index, excluding food costs, rose 0.9 percent from the year before. Including both food and energy, prices rose 1.1 percent.

Japan’s jobless rate remained flat in October, though the number of jobs available rose slightly.

Further improvement is expected in November, aided by strength in housing construction and exports.

“Business conditions in the Japanese manufacturing economy improved for the ninth consecutive month and at a rapid pace in November, driven for the most part by an expansion of both foreign and domestic demand,” said Claudia Tillbrooke, an economist at Markit, who compiles its purchasing manager’s index for Japan. That index rose to 55.1 in November, from 54.2 in October. A reading above 50 suggests expansion.

The government and central bank have set a target for attaining a 2 percent inflation rate within two years. So far, economists say, most of the increase in prices has come from a weakening in the Japanese yen, which erodes consumer spending power and increases costs in yen terms for imports of fuel, food and industrial components.

Overall household spending, which accounts for nearly two-thirds of Japan’s economic activity, rose 0.9 percent in October. Excluding housing costs, spending fell 1.5 percent from the month before and 0.3 percent from September. Workers’ incomes fell an average of 1.3 percent in October.

Prices Are Rising for New Homes, and the Land They Are Built On

Already, developers report that the cost of land in the most desirable areas is double what it was two years ago. At least three golf courses in the Minneapolis-St. Paul area are being carved into millions of dollars’ worth of residential lots. The race has even sent builders back to outer suburbs like Otsego, 30 miles from downtown Minneapolis, where bulldozers are laying the groundwork for four-bedroom houses with three-car garages, in subdivisions bordered by cornfields.

“Lot buyers and sellers!!!!!!!!” Mr. Felix’s Web site reads. “It is time to get moving again....!”

Or past time. The latest land rush is in full swing, as developers realize that they have failed to feed the zoning, permitting and mapping pipeline, which can take months or years to turn raw fields into buildable lots. They are realizing another thing, too: they have been sorely missed.

“For the first time, I’ve seen cities want to work to help figure it out, rather than doing us a favor all the time to let us develop,” said Scott Carlston of Hunter Emerson, a development partnership. Hunter Emerson won a victory when the city of Eagan, a suburb of Minneapolis, allowed Parkview Golf Club to be converted into a high-end single-family subdivision.

The hunt for dirt is not limited to the Twin Cities. After builders across the country spent decades feeding acre after acre of raw land into the maw of demand for single-family homes, the housing crash left them with a land surplus so large that lots were selling for pennies on the dollar. At the peak of supply, in 2009, there were enough lots to last almost eight years, according to MetroStudy, a firm that tracks housing data. Now there is less than four year’s worth, and only about a quarter of that is in the more desirable A- or B-rated locations.

“We have gone from a situation where five years ago everyone was saying, ‘There’s too many lots,’ to today, builders are literally crying on our shoulder saying, ‘There’s not enough lots. We can’t find any,’” said Bradley F. Hunter, the chief economist at MetroStudy.

The shortage of lots is slowing the housing recovery, the National Association of Home Builders said last week. In August, 59 percent of builders surveyed said lot supply was low or very low, the association said. Housing is a critical driver for the economy, not just because of the jobs and supplies needed to build homes but also the appliances and furnishings that new occupants buy.

At the peak of the housing boom, builders were finishing more than 1.6 million single-family houses a year. That number plunged to less than half a million during the recession. This year, the industry is on track to complete more than 570,000 homes, still substantially below the level considered necessary to replace aging homes and provide for new households. A return to more normal rates of construction would substantially lift the economy’s anemic growth rate of about 2 percent over the last year.

Mr. Carlston said some cities in the Twin Cities area had adjusted their rules to allow fewer parking spaces or smaller lots. Otsego has lowered some of its development fees and allowed a developer to change an approved plan so that a partly built town house project could be finished with more salable detached homes. Rick Packer, a land development manager for Centra Homes, said some suburbs were relaxing requirements that homes be made of brick or stucco.

Even the Sierra Club, which once placed Minneapolis among the top 10 sprawl-threatened cities, has backed off a bit. An annual bike ride by the local chapter, once known as the “Tour de Sprawl,” has been given a less pejorative name and refocused to include not just threatened green space but what the group considers model development and transportation projects.

Mayor Mike Maguire of Eagan, a co-chairman of the Regional Council of Mayors Housing Initiative, said one reason his city had approved a land use change for the golf course was that so little new housing was built in the last few years. “When there’s no new development, you have stock that’s increasingly out of date and that tends to bring your home values down,” he said. “That was one of the things we were hearing back from Realtors, was they had people who wanted to move to Eagan but couldn’t find the home they wanted.”

Last year, Hunter Emerson agreed to pay $8.6 million for the golf course, wagering that the city would approve the land use change. The partnership sold the property to a national home builder for $13.1 million, Mr. Carlston said. The houses will cost from $400,000 to $700,000, he said.

The excess left from the boom — land in various stages of development ranging from untouched to what builders call PVC farms, named for the hard plastic plumbing pipes that, with electrical lines, were virtually all that was on the lots — is quickly being absorbed. Developers have gone from buying foreclosed acreage from banks to buying from farmers, family trusts, manufacturers and even homeowners with outdated homes on single lots.

“What we’ve seen is the inner ring of the suburbs, all those areas have come back,” said Rod Just of Key Land Homes, a Twin Cities builder. “The outer ring, they’ve taken just a little bit longer because of gas prices, but they’re going to come back.”

For builders, there is even a sense of déjà vu. “The new lots that are coming out,” Mr. Just said, “are almost the prices that they were in 2005 when everything crashed.”

Major Surge Is Unlikely for Prices of U.S. Gas

But energy experts say that a major jump is unlikely for the 29.2 million Americans whom AAA expects to travel 50 miles or more on the road this weekend — up from 28 million last year — despite the summer of unrest across the Middle East and North Africa.

In fact, Americans will pay considerably less for gasoline than they did last Labor Day weekend, when refinery shutdowns and Hurricane Isaac, which hit the coast of the Gulf of Mexico, heightened fears of gasoline shortages.

“Gasoline prices are going to be surprisingly temperate,” said Tom Kloza, chief oil analyst at GasBuddy.com. “In California drivers will be spending 30 to 40 cents less than last Labor Day weekend for a gallon of regular and much of the rest of the country will be between 5 and 15 cents lower than last year.”

According to the AAA daily fuel gauge report, the national average price of a gallon of regular gasoline on Friday was just over $3.58, still only 5 cents higher than a week ago and 4 cents cheaper than a month ago. Gasoline prices are just beginning to catch up with the rise in global crude oil prices, which had climbed roughly $6 a barrel in just a few days as the United States and allies prepared to attack Syria in retaliation for what they suspect was a government chemical weapons attack on Syrian civilians.

Oil prices retreated by about $2 a barrel on Thursday and slumped a bit more on Friday. Experts said prices could easily jump back up after an expected attack on Syria.

Oil experts say gasoline prices could rise as much as 10 cents a gallon over the next week or two, as higher oil prices gradually push up wholesale and retail prices. But few expect a big, lasting jump unless there is a major expansion of conflict across the Middle East that seriously threatens oil production and shipments.

The Energy Information Administration projects that the national average price for a regular gallon of gasoline will be $3.59 during the third quarter and $3.52 for the entire year, 11 cents below the average 2012 price. It expects an even lower 2014 annual price of $3.37 a gallon.

“Gas prices are probably going to be spiking over the next few days,” said Michael Green, a spokesman for AAA. But he added: “It’s not horrendous. We’re looking at the lowest Labor Day gas prices since 2010.”

One reason, according to a report by the Energy Department on Wednesday, is a surprise weekly jump of three million barrels in national oil inventories. The report also showed a much lower-than-expected drop in inventories of gasoline, which remained particularly well supplied on the heavily populated East Coast. Several East Coast refineries that curtailed operations last week for unplanned maintenance are expected to be back up in the next few days, which should further increase supplies.

Summer driving normally tapers off after the Labor Day weekend, and that should help keep a lid on prices. Demand for gasoline should drop by about 15 million gallons a day in September from August levels, according to government statistics.

Most important, the country is better prepared for any shocks if the instability in the Middle East and North Africa escalates much further. United States gasoline inventories are up nearly 10 percent from a year ago, while demand is up by only about 1 percent.

Mostly because of a frenzy of shale drilling and expansion of oil sands production, the United States and Canada are producing two million barrels of oil a day more than when the turmoil in the Middle East and North Africa broke out two years ago. That, along with the decline in consumption since 2007, has meant that the Strategic Petroleum Reserve and other inventories now have the capacity to replace about nine months of imports, about 40 percent more than only five years ago.

Stocks & Bonds: Surge in Commodities Prices Helps End Slump on Wall St.

Mining companies and others dealing in commodities helped pull the stock market out of a three-day slump on Thursday.

News that China’s trade rebounded last month signaled the end of a six-month slowdown for the world’s biggest buyer of raw materials. The report drove prices up for copper and other commodities, and that helped lift Newmont Mining, Freeport-McMoRan and other stocks in the materials industry.

“The one thing that stands out today is the better news out of China,” said David Joy, the chief market strategist at Ameriprise Financial. “It comes as a pleasant surprise.”

The Standard & Poor’s 500-stock index edged up 6.57 points, or 0.4 percent, to 1,697.48.

The Dow Jones industrial average rose 27.65 points, or 0.2 percent, to 15,498.32. The Nasdaq composite gained 15.12 points, or 0.4 percent, to 3,669.12.

With little other news to drive trading, the stock market had meandered lower this week. The S.& P. 500 fell three days straight and remains down 0.7 percent for the week. It is still up 19 percent this year.

Brad McMillan, chief investment officer for Commonwealth Financial Network in Waltham, Mass., said a number of concerns weighed on the market this week. Comments from Federal Reserve officials have convinced many investors that the bank will begin pulling back its support for the economy in the coming months.

In an interview on CNBC after the market closed, Richard W. Fisher, head of the Fed’s Dallas branch, reaffirmed his view that it was time to wind down the bank’s stimulus effort.

At the same time, companies are warning of slower sales and turning in tepid second-quarter results. Mr. McMillan said it was starting to look as though corporate earnings had not kept up with the stock market’s strong pace this year.

“I think people are realizing that stock values are getting disconnected from earnings growth,” Mr. McMillan said. “For the rally to continue, people will have to pay more for earnings that aren’t growing that much.”

Investors are paying more for profits. A year ago, the price-earnings ratio for the S.& P. 500 was 13.4, according to the data provider FactSet. Now it is 15.6, which is still near the long-run average.

In other trading on Thursday, the better economic news out of China sent copper, widely used for electronics and to wire buildings, up 10 cents, or 3 percent, to $3.27 a pound. Gold rose $24.60, or 2 percent, to $1,309.90 an ounce.

In the bond market, the price of the 10-year Treasury note rose 10/32, to 93 1/32, while its yield fell to 2.59 percent, from 2.60 late Wednesday.

Bits Blog: Two Tales of Plummeting Prices

Timothy A. Clary/Agence France-Presse — Getty Images, Mark Blinch/Reuters Microsoft’s Surface tablet, left, cost $500 when it was released in October, but it is now $350 on Microsoft’s Web site. The BlackBerry Z10, right, was $200 with a contract when it was released; now it’s free with an AT&T contract.

When a new digital device gets a big price cut, it’s usually good news for consumers, but it’s usually a sign of poor sales, too — even if the maker of the device doesn’t want to admit that publicly.

Take the BlackBerry Z10 smartphone, which, after disappointing sales, dropped significantly in price just a few months after release.

When it was released in the United States in March, the Z10 cost $200 with a contract. Now the Z10 is free at Best Buy with an AT&T contract, or for $50 with Verizon. In Canada, where the Z10 was released in February and where sales were stronger, the smartphone is $100 to $150.

Or take Microsoft’s Surface tablet. It cost $500 when it was released in October, but it is now $350 on Microsoft’s Web site. Analysts estimate that demand for the tablet was weak during the holiday quarter.

It has become a tradition for company representatives to shrug off a major price cut and say that these types of sales always happen. That was Nokia’s explanation when it halved the Lumia 900’s price soon after release, and AT&T’s explanation for the price cut of the HTC First, the Facebook phone. Neither of those devices were selling well.

Meanwhile, the price of the iPhone 5, one of the best-selling smartphones in the world, hasn’t changed since its release in September.

Adam Emery, a BlackBerry spokesman, said that trimming the price of a smartphone was part of normal procedure:

Like any other smartphone maker, we, along with our partners, make adjustments as we roll out new elements of the product portfolio. And with the recent arrival of our flagship BlackBerry Q10 smartphone, now is the right time to adjust the price for the BlackBerry Z10 all touch device. As we have said, we will be introducing several BlackBerry 10 devices before the end of our fiscal year. It’s part of life cycle management to tier the pricing for current devices to make room for the next ones. This is just one element of our marketing strategy that will ensure we remain aggressive in a very competitive market landscape.

Microsoft’s response is a bit different. The software maker, which is a new player in the mobile hardware market, says it has been happy with past promotions it has done for the Surface, like one in the United States in which customers received a free keyboard cover when they bought the tablet. So it says it is sharply cutting the price to get the tablet into even more people’s hands:

We’ve been seeing great success with pricing and cover promotions over the past several months on Surface RT in the U.S. and other markets. People who buy Surface love Surface, and we’re excited about all those additional people out sharing their excitement for Surface with other people.

Sales for mobile devices do happen. But Jan Dawson, a telecom analyst at Ovum, says that if a device is still new, a big discount is typically a sign that its sales didn’t start off strong and the company is trying to clear out inventory.

“In the case of the Z10 it seems to have happened pretty quickly,” he said of BlackBerry’s phone, “which probably means one of two things: It’s selling poorly, or they want to clear inventory before bringing out something more appealing later this year.”

This post has been revised to reflect the following correction:

Correction: July 17, 2013

An earlier version of this post referred incorrectly to the country in which customers received a free keyboard cover when they bought a Surface tablet. It was in the United States, not Japan.

Nudged by Gas Prices, Wholesale Inflation Rises

Wholesale prices rose 0.8 percent in June compared with May, when prices rose 0.5 percent, the Labor Department reported on Friday. It was the biggest gain since a 1 percent increase in September and was driven by a 7.2 percent surge in gasoline prices.

Outside of the volatile energy and food sectors, core inflation was up just 0.2 percent in June.

Core prices have risen 1.7 percent over the last 12 months. Aside from sharp swings in gas prices, inflation has increased very slowly over the last year, giving the Federal Reserve the room to keep interest rates low to lift the economy.

The government’s Producer Price Index measures inflation before it reaches the consumer. Consumer prices have been rising at a modest rate as well. Over the 12 months ending in May, consumer prices outside of food and energy were up just 1.7 percent, below the Fed’s 2 percent target for inflation.

For June, energy prices at the wholesale level were up 2.9 percent, reflecting the big increase in gas prices. It was the biggest increase since February.

Food costs rose 0.2 percent in June, a moderation after a larger 0.6 percent May increase in food that had been driven in part by a surge in the price of eggs. For June, egg prices retreated, falling 26.8 percent, the biggest one-month drop in seven years.

The wholesale price of passenger cars rose 0.8 percent in June, the biggest increase since November 2011, but most other categories showed moderation. Furniture prices were up 0.3 percent.

Total wholesale prices were up 2.5 percent in June compared with a year ago.

Sudden Spike in Gas Prices, but Increases May Be Short-Lived

And according to the AAA daily gauge report, the average price of a gallon of regular gasoline is 17 cents more today than just a year ago, at a time when Americans appear to be driving substantially more than last summer.

In the last week, the price rose approximately 7 cents, reaching an average $3.55 on Friday for a gallon of regular grade, the report said. Prices range widely around the country. In South Carolina, for instance, a gallon of regular averages $3.21; in California drivers pay $3.99.

“We’re going to get a little sticker shock at the pump,” said Tom Kloza, chief oil analyst at GasBuddy.com, a Web site that monitors gasoline prices. “We’ve moved up on wholesale prices anywhere from 35 to 60 cents a gallon since June 28. This summer we are looking at average prices of somewhere between $3.45 and $3.75, and unfortunately I think we will approach the high end of that range pretty shortly.”

The recent price increases can be attributed mainly to higher global crude prices that have been creeping up because of the unrest in Egypt, brief export failures in Libya and Iraq and disruptions of Nigeria’s oil pipelines. Egypt is not a major oil producer, but instability there raises fears of a possible blockage of the Suez Canal, a major thoroughfare for oil exports and spreading unrest in the region.

West Texas Intermediate, the main American benchmark, has been rising for more than a week, partly because higher demand among summer vacationers has caused a sudden large drop in American inventories. Many experts say they believe that the American benchmark price, which has been depressed relative to global benchmarks in recent years, could remain somewhat higher for a while because new pipelines and railroad lines are gradually relieving bottlenecks for oil produced and stored in the Midwest.

In storage and delivery centers like Cushing, Okla., for example, excess inventories of landlocked oil that could not be easily transported made the oil cheap. But now that supplies are moving around the country more regularly, wholesale and retail prices are rising.

Stockpiles in Cushing fell by 2.7 million barrels last week alone, reaching the lowest levels of the year.

In recent years, a weaker economy and more fuel-efficient vehicles combined to lower American gas consumption, before this summer’s blip of vacation driving bucked the trend. And few oil experts expect a long-term increase in oil and gasoline prices. The rapid growth in United States oil production, coupled with sluggish demand in Europe and slowing growth in China and much of the developing world, is expected to restrain prices. Some experts predict a decline in oil prices over the next year.

“You will see oil prices hover somewhere in the $70 to $100 range,” Harbir S. Chhina, an executive vice president for Cenovus Energy, a major Canadian oil company, predicted for the United States oil benchmark in an interview last month.

The United States benchmark has broken out of that band for the first this time year in recent days to just over $105, representing about a $20 rise from last July. Crude prices, in the United States and abroad, rose approximately 1 percent on Friday.

Global oil production remains robust and some recent supply problems are easing. Two Libyan oil export terminals that were shut down in recent weeks by militias and disgruntled employees have resumed operations. The Kirkuk-Ceyhan pipeline, a major outlet of oil from Iraq’s northern oil fields, is returning to operations this week after being suspended since June 21 because of a leak and an interruption of repair work after an ambush on a crew of technicians.

Oil experts warn, however, that there is no telling when the next political crisis will come in the Middle East or North Africa.

“Oil price predictions used to be about oil consumption and markets, but now it’s about where the next riot will break out,” said Stale Tungesvik, a senior executive at Statoil, the Norwegian oil giant. “It’s so much more politically based, and that makes it a mystery to everyone.”

This article has been revised to reflect the following correction:

Correction: July 12, 2013

An earlier version of this article misspelled the surname of a senior executive at Statoil. He is Stale Tungesvik, not Tugesvik. It also misspelled the name of a Canadian oil company. It is Cenovus Energy, not Cenovis Energy.

2 Infant Formula Makers to Cut Prices After China Starts an Investigation

Wyeth Nutrition, which Nestlé bought last year, said this week that it had been cooperating with the investigation by the National Development and Reform Commission of China and was responding by cutting prices and improving sales and marketing practices.

Danone, which has also acknowledged that its Dumex unit was cooperating with the Chinese commission, said in an e-mail statement that it was preparing a price cut proposal with details to be disclosed later.

Both companies, along with Mead Johnson Nutrition and Abbott Laboratories, said earlier this week that they were being investigated by the Chinese commission.

In a statement, Wyeth Nutrition said it “decided to implement a price reduction” of products from July 8 through 2014. “The average reduction will be at 11 percent, with the biggest single product price reduction at 20 percent.”

The company said it would not raise prices on any new products over the next year. Wyeth did not give any further details.

Analysts said the investigation could result in fines and tougher rules governing imports into an infant milk market expected to grow to $25 billion by 2017. The firms could face fines ranging from 1 percent to 10 percent of their annual sales, the state-run Xinhua news agency quoted experts as saying.

Some analysts see the inquiry as possibly part of a broader Chinese plan to increase consumption of local infant-milk products. Mothers turned away from Chinese milk powder in 2008 when infant formula tainted with the industrial compound melamine killed at least six babies and made thousands sick with kidney stones.

China has since made efforts to crack down on persistent food safety problems that have included chemical-laced pork and infant milk contaminated with cancer-causing agents.

Some Chinese producers of infant formulas have started forming partnerships with foreign companies to try to increase brand recognition and gain technical expertise.

Foreign brands may also soon have to rely on their Chinese partners if they want greater access to the Chinese market. The Chinese government has expressed an interest in bringing the supply chain under the control of Chinese firms as part of its goal of reducing the number of local infant formula producers to 10 from more than 200 within two years.

DealBook: Suntory Beverage Unit Prices Tokyo I.P.O. at $4 Billion

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Food and Gas Drove Wholesale Prices Up in May

In addition, the Labor Department reported that a rise in food and gas costs drove a measure of wholesale prices up sharply in May. But outside those volatile categories, inflation was mild.

The department also said on Friday that the producer price index rose 0.5 percent in May from April. Gas prices rose 1.5 percent last month, and food costs increased 0.6 percent.

Confidence in the economy has fallen in June to a lower level than economists estimated, according to the Thomson Reuters/University of Michigan survey.

Scott King, senior fiduciary investment adviser at Unified Trust in Lexington, Ky., said that investors were disappointed on Friday by the decline in consumer confidence. He described the economy as “plodding along.”

“Wage growth continues to be pretty meager, and unemployment continues to be lackluster,” Mr. King said.

The Federal Reserve said on Friday that factory production rose just 0.1 percent in May from April, a sign that manufacturing was providing little support for the economy. Output fell 0.4 percent in April and 0.3 percent in March.

Factories produced more autos, computers and wood products last month, offsetting declines in the production of furniture and primary metals.

Manufacturing output has risen 1.7 percent in the last 12 months.

“Manufacturers are still struggling to cope with the ongoing weakness of global demand,” said Paul Dales, senior U.S. economist at Capital Economics.

In wholesale prices, the increase last month came after a 0.7 percent decline in April and a 0.6 percent drop in March, both of which were driven by steep declines in gas prices.

Core prices, which exclude food and energy, rose 0.1 percent in May. That matches the April increase. The index measures price changes before they reach the consumer.

“There really is not much inflationary pressure in the economy,” Mr. Dales said in a note to clients.

Aside from sharp swings in gas prices, consumer and wholesale inflation has increased very slowly in the last year. Both the overall and core indexes have risen just 1.7 percent in the 12 months ending in May. That is less than the Federal Reserve’s 2 percent inflation target, allowing the Fed more latitude to pursue its aggressive policies to spur greater economic growth.

The combination of modest economic growth and high unemployment has kept wages from rising quickly, making it harder for retailers and other businesses to raise prices.

Most of the May increase in food costs stemmed from a 41.6 percent rise in the cost of eggs, the biggest on record. The increase reflected soaring demand in the United States and overseas. The Memorial Day and Mother’s Day holidays, popular occasions for brunch, spurred more demand in the United States, a department spokesman said. And Mexico imported more eggs from the United States in response to a bird flu epidemic.

Nearly two-thirds of the 0.1 percent increase in core prices was caused by a 0.4 percent rise in the wholesale cost of pickup trucks. The housing recovery has created more business for landscapers and contractors, who have bought more trucks.

March Home Prices See Best Annual Rise in Seven Years

The data on Tuesday also suggested the two segments could act as buffers as the broader economy faces the pinch of belt-tightening in Washington.

The S&P/Case Shiller composite index of 20 metropolitan areas climbed 10.9 percent year over year, beating expectations for 10.2 percent. This was the biggest increase since April 2006, just before prices peaked in the summer of that year.

Prices in the 20 cities gained 1.1 percent in March compared to the month before on a seasonally adjusted basis, topping economists' forecasts for a 1 percent rise.

The housing market turned a corner in 2012, several years after its far-reaching collapse. The recovery has picked up since as inventory has tightened, foreclosures eased and historically low mortgage rates have attracted buyers.

A Reuters poll showed the recovery in the housing market likely has momentum through the rest of the year, with economists ratcheting up their forecasts for price gains in 2013.

Separate data showed consumer confidence picked up in May to its highest in more than five years in the midst of a stock market rally and lower gasoline prices.

Housing and the consumer have shown strength even as there have been hints that tighter fiscal policy is starting to bite in the broader economy. Across-the-board U.S. government spending cuts of $85 billion went into effect in March, while the payroll tax holiday expired at the beginning of the year, raising taxes for many Americans.

The data suggested both areas were performing better than the overall economy, said Sam Bullard, senior economist at Wells Fargo in Charlotte, North Carolina.

"There are some individual circumstances that are helping to propel both of these a little bit stronger than what the actual underlying strength would suggest," said Bullard, pointing to the effect of higher stock prices on consumers, and investor demand for homes in beaten-down regions lifting prices.

Economists expect the pace of growth likely cooled in the second quarter, partly due to tighter fiscal policy, but the second half of the year is seen regaining traction. Investor attention has turned to when the Federal Reserve might start to slow its economic stimulus efforts.

The data lent support to equities where Wall Street rose after comments from central banks around the world reassured investors supportive monetary policies would remain in place. U.S. Treasuries yields rose to their highest levels in over a year.

Housing-related shares rose following the Case-Shiller report before giving up some gains in the afternoon, with the S&P homebuilders ETF up 0.4 percent. The ETF is up nearly 20 percent for the year, outpacing the more than 16 percent surge seen in the benchmark S&P 500 index.

Home prices in Phoenix continued their sharp ascent, rising 22.5 percent from a year earlier. Other standouts included San Francisco, up 22.2 percent, and hard-hit Las Vegas, up 20.6 percent.

Fitch Ratings on Tuesday said the recent home price gains seen in several markets are outpacing improvements in the underlying fundamentals and could stall or even reverse. Many of these areas are in California, Fitch said, citing Los Angeles as an example.

Los Angeles prices rose 16.6 percent from a year ago, the Case-Shiller report said.

For the first quarter of this year, the seasonally adjusted national index rose 3.9 percent, stronger than the 2.4 percent gain seen in the final quarter of last year.

"Low inventories and gradually improving housing demand have combined to push housing starts higher and support home price appreciation," said Michael Gapen, an economist at Barclays in New York.

"We see these factors as remaining in place and expect residential investment to add to GDP growth in the coming quarters. We also expect rising real estate wealth to support household balance sheets and underpin consumption, helping the broader economy to offset a substantial fiscal drag in 2013."

The Conference Board, an industry group, said its index of consumer attitudes jumped to 76.2 from an upwardly revised 69 in April, topping economists' expectations for 71. It was the best level since February 2008.

In a sign of confidence among high-end consumers, jeweler Tiffany & Co reported better-than-expected sales for the first quarter.

Consumer activity accounts for about two-thirds of the economy and while improved sentiment does not necessarily translate into more spending, the improvement was encouraging.

Still, even with the gain in confidence in May, second-quarter consumption growth is likely to have slowed to a 2.5 percent annualized pace from 3.2 percent in the first quarter, according to Capital Economics.

The expectations index rose to 82.4 from 74.3, while the present situation index climbed to 66.7 from 61.

Consumers' assessment of the labor market improved. The "jobs hard to get" index slipped to 36.1 percent from 36.9 percent the month before, while the "jobs plentiful" index gained to 10.8 percent from 9.7 percent.

(Editing by Chizu Nomiyama)

Home Prices Rise, Seen Helping Economic Recovery

The S&P/Case Shiller index of 20 metropolitan areas released on Tuesday showed single-family home prices rose 9.3 percent in February from a year earlier.

The data reinforces the view that rising home prices could make Americans feel better about spending this year, helping counter a hit to economic growth from tax hikes and government spending cuts.

"This will be a powerful positive fundamental not only for housing but presumably helpful for consumer spending as well," said Stephen Stanley an economist at Pierpont Securities in Stamford, Connecticut.

Another report showed U.S. consumer confidence rebounded in April as Americans felt better about the outlook for the economy and their income prospects.

The Conference Board, a private industry group, said its index of consumer attitudes rose to 68.1 from a revised 61.9 the previous month. Economists polled by Reuters had expected a reading of 60.8.

Still, there appears to be a growing risk that weakness in the labor market and broader economy could dial down the housing recovery's strength. Hiring slowed dramatically in March and economic growth was lackluster in the first quarter, raising fears the economy could struggle to cope with Washington's austerity drive.

Business activity in the U.S. Midwest unexpectedly contracted in April to its lowest level since September 2009 as a gauge of employment pulled back, another report showed.

The Institute for Supply Management-Chicago business barometer fell to 49, below the 50 mark that denotes contraction and falling short of economists' expectations for 52.5.

Other recent data has pointed to less steam building in the housing market, and the Commerce Department said on Tuesday that the U.S. home ownership rate slipped to 65.2 percent in the first quarter, a 17-year low.

Still, rising home prices could give construction firms more incentive to build new homes and increase inventories. A dearth of homes on the market has held back sales.

The S&P/Case Shiller index showed prices gained 1.2 percent in February on a seasonally adjusted basis from January, topping forecasts for a 0.9 percent gain.

Following a spectacular collapse that fueled the 2007-09 recession, the housing sector appears to have turned a corner and prices have been rising since February 2012.

MORE MONETARY STIMULUS AHEAD

U.S. stocks were about flat, although market players said the drop in Midwestern business activity weighed on sentiment. Yields on U.S. government debt were also little changed.

The data came as the Federal Reserve prepared to open a two-day meeting on monetary policy. A recent slew of weak U.S. growth data has raised expectations the Fed will keep its pace of bond buying at $85 billion a month throughout the year.

The Fed has kept overnight interest rates near zero since late 2008 and it has tripled its balance sheet to about $3 trillion through purchases of securities, which are aimed at pushing longer-term borrowing costs lower.

A separate report showed U.S. labor costs rose a modest 0.3 percent in the first quarter, pointing to a lack of inflationary pressures that could give the Fed space to continue its monetary stimulus.

Wages and salaries, which account for 70 percent of employment costs, increased 0.5 percent in the first quarter, and were up 1.6 percent in the 12 months through March, according to the report from the Labor Department.

Workers' benefits rose 0.1 percent during the quarter, the slowest pace since 1999. The data may have been distorted by an error found in benefits data for sales and office workers, but the department said the data error probably did not have a major impact.

(Reporting by Jason Lange in Washington and Leah Schnurr in New York; Editing by Neil Stempleman and Chizu Nomiyama)

Single-Family Home Prices Increased 9.3% in February

WASHINGTON (Reuters) — Home prices rose in February at their fastest rate in almost seven years, another sign the housing market recovery will help counter the drag on the economy from government belt-tightening.

The biggest gains in home prices were in some of the cities that were hardest hit by the crisis, including Phoenix, Atlanta and Las Vegas. Above, homes under construction in Atlanta in March.

The S&P/Case Shiller index of 20 metropolitan areas released on Tuesday showed single-family home prices rose 9.3 percent in February from a year earlier.

The data reinforces the view that rising home prices could make Americans feel better about spending this year, helping counter a blow to economic growth from tax increases and government spending cuts.

“This will be a powerful positive fundamental, not only for housing, but presumably helpful for consumer spending as well,” said Stephen Stanley an economist at Pierpont Securities in Stamford, Conn.

Another report showed consumer confidence rebounded in April as Americans felt better about the outlook for the economy and their income prospects. The Conference Board, a private industry group, said its index of consumer attitudes rose to 68.1 from a revised 61.9 the previous month. Economists polled by Reuters had expected a reading of 60.8.

Still, there appears to be a growing risk that weakness in the labor market and broader economy could dial down the housing recovery’s strength. Hiring slowed drastically in March and economic growth was lackluster in the first quarter, raising fear that the economy could struggle to cope with Washington’s austerity drive.

Business activity in the Midwest unexpectedly contracted in April to its lowest level since September 2009 as a gauge of employment declined, another report showed.

The Institute for Supply Management-Chicago business barometer fell to 49, below the 50 mark that denotes contraction and falling short of economists’ expectations for 52.5.

Target to Match Some Rivals' Online Prices Year-Round

The move extends an online price-matching program that Target introduced over the holiday season and which was supposed to last only from November 1 to December 16. It also comes after Target last week reported flat sales growth in December at stores open at least a year.

"I think this is largely symbolic, it's akin to removing the Kindle from their stores," said Wells Fargo analyst Matt Nemer, referring to Target's decision to stop selling Amazon's tablet devices last year.

In November, Chief Executive Gregg Steinhafel said Target was not seeing a lot of price-match activity in its stores.

"It's not likely to have a huge impact on financials or customer behavior," said Nemer, who noted that customers are not likely to go to Target's guest services desk for a refund for just a small difference in price.

Also, much of what Target sells, such as apparel and accessories, is exclusive to the store, so there would be no comparable prices from competitors.

But Target will now also match prices year-round from its own website in its stores.

Nemer called that "a really important step," saying it removes confusion for customers who sometimes see different prices for products such as televisions in stores and online.

While shopping online has grown rapidly in recent years, it still represents a small fraction of overall shopping in the United States. Target's policy of matching online prices differs from policies at several chains, which match only printed advertised prices for items sold at stores.

Target said that throughout the year it will match the price when a customer buys an eligible item at one of its stores and finds the same item at a lower price in the following week's Target circular or in a local competitor's printed ad. It will also match the price if the customer finds the same item at a lower price within a week on Target's website or the websites of Amazon, Walmart, Best Buy and Toys R Us.

Amazon says it offers competitive prices and does not offer price matching when an item's price drops after a customer buys it, with the exception of televisions. Walmart matches the prices of print ads from competitors and said it has no plans to change its policy. Walmart also says it checks the prices of 30,000 items at competing chains each week to make sure it has the lowest prices.

Best Buy matches the price from a local competitor's store, a local Best Buy store or its own web site. Toys R Us matches in-store prices and certain online prices.

Shares of Target were down 60 cents at $60.70 in afternoon trading on the New York Stock Exchange.

(Reporting By Jessica Wohl in Chicago and Phil Wahba in New York; Editing by Alden Bentley and John Wallace)

Consumer Prices Fall 0.3% on Lower Gas Costs

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Oil Prices Stay Steady Despite Mideast Conflict

Global oil prices went up and down Wednesday as diplomatic efforts to end the turmoil in Israel and the Gaza Strip faltered and then appeared to succeed. But after eight days of violence, most benchmark prices are little changed from where they began.

A rise in oil and gasoline prices during a Middle East crisis would be no surprise, and there is no telling how long the cease-fire will last. But oil experts say there is little chance of a big price spike since Israel and Gaza are not oil-producing areas and global supplies are currently plentiful.

In addition, while many oil-producing nations in the Middle East and elsewhere are pumping oil at unusually high rates, demand for petroleum products in much of the world has weakened because of the global economic slowdown.

“The global market is well supplied,” said Chakib Khelil, a former Algerian energy minister who was also president of OPEC. “The stocks are pretty good, and the Gulf countries and Saudi Arabia are sustaining supplies while the weak economic situation in Europe is softening demand.”

Many analysts say the global Brent crude oil benchmark price, currently around $111 a barrel, would be $20 to $30 lower if it were not for the persistent instability in the Middle East and North Africa, particularly the tensions surrounding Iran’s nuclear energy policies.

Crude prices have fluctuated since tensions between Hamas and Israel spurred an exchange of rocket fire and bombs over the last week, as some traders feared that a full-fledged war might bring Iran and other regional powers into the conflict.

Prices eased on Tuesday by nearly 2 percent as negotiations for a cease-fire appeared to gain traction, but then rebounded about 1 percent after a bus bombing in Tel Aviv on Wednesday slowed progress. As reports surfaced that a cease-fire was again at hand, crude prices settled back down and then rose slightly.

But drivers in the United States have been minimally affected by the crisis, in part because a boom in oil drilling in North Dakota and Texas has decreased the country’s dependence on foreign oil.

The average price of a gallon of regular gasoline in the United States on Wednesday was $3.43, nearly 2 cents lower than a week ago and 24 cents lower than a month ago.

Compared with a year ago, though, the price was up 8 cents, and the highest on record for Thanksgiving. That is mostly because of the effects of Hurricane Sandy, which interrupted supplies in the New York metropolitan area and on much of the East Coast. In many other states, drivers are paying less for gasoline than they were a year ago.

According to the Oil Price Information Service and AAA, gasoline prices in New Jersey are roughly 30 cents above last year’s levels, while drivers in Massachusetts, New York, Pennsylvania and Rhode Island are paying over 20 cents more. Oil analysts say those prices should begin to ease in the next two weeks as regional refineries and oil terminals that suffered flooding and power failures gradually return to normal operations.

With the exception of temporary, localized problems, oil experts say the country is well supplied with oil and gasoline, despite an Energy Department report on Wednesday showing that crude oil and motor gasoline inventories declined last week.

“Nationally, we have ample gasoline supplies, given where demand is,” said Anthony Rouse, chief economist at Phillips 66, the global refinery giant.

Mr. Rouse said he did not think the Gaza crisis would affect domestic petroleum supplies or prices in any substantial way. “Right now, this looks relatively self-contained in nations that are not really oil-producing areas,” he said, adding that even if Iran became more deeply involved, “the market is already factoring in lower Iranian production because of the sanctions.”

Iran is exporting just over a million barrels a day, down from three million in the summer of 2011 because of sanctions imposed by the United States and Europe. Even so, production by members of the Organization of the Petroleum Exporting Countries has increased over the last year, with Iraq’s output up by 500,000 barrels a day and Libya recovering more than 1.5 million barrels a day lost during its civil war last year. Saudi Arabia and Kuwait are also producing more.

Countries outside of OPEC are also producing slightly more than a year ago, mainly because of increased output from the United States and Canada.

Demand for liquid fuels is down by 1.5 percent in the United States this year, according to the Energy Department, because of the slow economic recovery and a gradual improvement in the efficiency of cars. Demand is falling even faster in Europe, and demand in the developing world is increasing more slowly.

Nevertheless, energy experts warn that a jump in oil prices is possible in the year ahead because so much of the world’s supplies come from politically unstable nations. Pipeline sabotage has caused production delays in Nigeria in recent months. Libyan militias independent of government control can threaten oil production, though so far they have mostly left the country’s oil fields and refineries alone. Sectarian violence is a threat to Iraq’s growing oil industry.

Then there is the possibility that Israel or the United States might attack Iran to stop it from attaining nuclear weapons. Iran has repeatedly threatened to block the Strait of Hormuz, the narrow waterway through which nearly one-fifth of the world’s oil is shipped.

“The Middle East will always be hanging over us,” said Lawrence J. Goldstein, a director of the Energy Policy Research Foundation, which is partly financed by the oil industry.

Economix Blog: Housing Prices and Income Inequality

Why is the gap between rich and poor in America yawning ever wider?

The issue is urgent. As my colleague Annie Lowrey writes, there is growing evidence that income inequality impedes economic growth.

And one interesting explanation boils down to the high price of housing.

A recent paper by researchers at Harvard University argues that the prohibitive cost of living in the areas with the greatest economic opportunities has forced low-wage workers to migrate instead to areas with inferior opportunities.

“The best places for low- and high-skilled workers used to be the same places: California, Maryland, New York,” said Peter Ganong, a doctoral student in economics, who wrote the paper with Daniel Shoag, a professor of public policy. “Now low-skilled workers can no longer afford to move to the high-wage places.”

In this account, people aren’t moving to the Sun Belt because they want to live there. They are moving because they can’t afford to live in Boston. And the result isn’t just second-best for them; it also slows the pace of economic growth.

Basically, the economy works best when people can move where their skills are most valued. But for low-skill workers, the high price of housing means the cost of living in those places often exceeds the benefits of working there.

The trends are beautifully illustrated by three time-lapse graphics.

The first shows that average incomes by state converged between 1880 and 1980 as low-skilled workers moved to wealthier states. The second shows the pattern of migration, which has changed significantly over the last 30 years.

The third shows the increase in land-use regulations in rich states.

And here’s the crucial point: It doesn’t have to be this way. High housing prices are the result of public policies that discourage new development. Those policies are generally embraced by the residents of wealthy areas, who benefit, at least in the short term, from restrictions on the supply of new housing. But this paper is one more reason to worry about the long-term economic consequences.