Markets & Finance

Vital Signs: Consumers Keep Shopping


On tap: Retail sales, business inventories, and import prices for December, and international trade figures for November

Consumers continue to be the driving force for the U.S. economy. The government's tally of December retail sales is expected to show a pretty strong finish to the holiday season, with economists forecasting a 0.6% monthly gain. That would follow a 1% gain in November.

The weekly and monthly chain store sales reports have reflected a weaker-than-expected end to the year. But those results miss two important trends: the popularity of Internet shopping and a growing use of gift cards. The importance of the Internet in holiday shopping showed up in November. The non-store sales category was up 1.3% from October and 10.1% from a year ago. Meanwhile, the boom in gift cards should boost Jan. retail figures. Retailers don't report sales from gift cards until they are redeemed.

Strong consumer demand is good news for many businesses that have seen unexpected jumps in their inventories. November business inventories are expected to grow at a slower pace relative to recent months. After a soft third quarter for consumer spending, a fourth-quarter rebound should help business begin to pare down unwanted stockpiles. Also, November wholesale sales and inventory data will provide an early read of how swift this inventory adjustment may be.

The seemingly insatiable appetite of consumers is also a reason why the trade deficit has continued to widen, as is expected for November. However, the November figures are also projected to show further gains in exports. While U.S. consumers demand more goods from abroad, businesses outside of the U.S. are demanding more capital goods and industrial supplies from American companies.

And given expectations among economists and investors that the greenback will keep falling in 2007, there is a better chance that monthly trade deficits should stabilize if not get a little narrower this year. The U.S. currency's gradual decline in 2006 gave exporters some room to raise the prices of their goods in dollar terms. Meanwhile, it put pressure on importers to raise the price of their goods in dollars or take a hit on earnings when converted from dollars to yen, euro, or other foreign currency. The gradual rise in import and export prices is expected to continue in the December numbers.

The financial markets will close early on Friday, Jan. 12 ahead of the Martin Luther King Day holiday.

Here's the economic calendar, from Action Economics.

Economic Reports

Report

Date

Time

For

Median Estimate

Last Period

Consumer Credit (billion)

Monday, Jan. 8

3:00 p.m.

November

$3.1

-$1.2

Trade Balance (billion)

Wednesday, Jan. 10

8:30 a.m.

November

-$60.0

-$58.9

WholesaleTrade Sales

Wednesday, Jan. 10

10:00 a.m.

November

0.3%

-0.5%

Treasury Budget (billion)

Thursday, Jan. 11

2:00 p.m.

December

$19.0

-$75.6

Retail Sales

Friday, Jan. 12

8:30 a.m.

December

0.6%

1.0%

Retail Sales (ex-auto)

Friday, Jan. 12

8:30 a.m.

December

0.5%

1.1%

Export Price Index

Friday, Jan. 12

8:30 a.m.

December

0.2%

0.4%

Import Price Index

Friday, Jan. 12

8:30 a.m.

December

0.5%

0.2%

Business Inventories

Friday, Jan. 12

10:00 a.m.

November

0.2%

0.4%

MEETING OF NOTE

Monday, Jan. 8 - U.S. President George W. Bush meets with European Commission President Jose Barroso at the White House in Washington, D.C.

CONSUMER INSTALLMENT CREDIT - Monday, Jan. 8, 3 p.m. EST

Consumers are expected to have accumulated a small amount of consumer debt in November. The level of outstanding declined by $1.2 billion in October. The drop was due to a $4.2 billion decline in non-revolving debt, which consists largely of auto loans. Light vehicle sales in October cooled to an annual rate of 16.1 million, and cooled off a little further in November. The yearly growth rate of non-revolving credit has now eased to 3.4%, the slowest rate since 1993.

The increase in revolving credit was $2.92 billion, the smallest monthly rise in seven months. Revolving credit balances, which are made up mostly of credit cards, grew pretty briskly in the summer, just as gasoline prices surged.

ICSC-UBS STORE SALES - Tuesday, Jan. 9, 7:45 a.m. EST

This weekly tracking of retail sales, compiled by the International Council of Shopping Centers and UBS bank, will update buying activity for the period ending Jan. 6. Weekly sales remained strong after Christmas as sales rose 0.3% for the week ended Dec. 30. During the week ended Dec. 23, weekly sales rose 2%, after a 1.6% jump in the prior week. The increase from a year ago picked up to a rate of 2.8%, from 1.7% in the prior week.

JOHNSON REDBOOK INDEX - Tuesday, Jan. 9, 8:55 a.m. EST

This weekly measure of retail activity will report on sales for the first fiscal week of the year, ended Jan. 6. Sales during December were down 1.4% compared to November. For the full month of November, sales ended up 0.1% better than October.

MORTGAGE APPLICATIONS - Wednesday, Jan. 10, 7 a.m. EST

The Mortgage Bankers Association releases its weekly mortgage application volume figures for home buying and refinancing activity during the week ending Jan. 5. Activity improved a little in the face of higher mortgage rates.

The purchase index rose to 406.9 for the week ended Dec. 29, from 390.2 in the week ended Dec. 22. The refi index was 1640.4 in the most recent period, from 1604.6 for the week ended Dec. 22.

The four-week moving average for the purchase index, however, still slowed. The average through the week ended Dec. 29 was 424.4, from 429.3 in the week ended Dec. 22. The four-week average for the refi index cooled off to 1879.6, from 1966.9.

The latest uptick in activity occurred even as mortgage rates kept inching higher. The average 30-year fixed-rate mortgage stood at 6.22% in the week ended Dec. 29, from 6.12% in the previous week.

INTERNATIONAL TRADE - Wednesday, Jan. 10, 8:30 a.m. EST

The U.S. trade deficit of goods and services probably widened a little in November. The October trade gap narrowed to $58.9 billion, the smallest monthly shortfall since August of 2005. The October result was driven mostly by a fall in imports. And the fall in October imports was largely the result of lower energy prices which helped reduce the nominal value of imported crude oil by $3.47 billion. Fuel oil, chemical, and petroleum product imports were down by a combined $1 billion. However, even after adjusting for prices, imports fell and exports rose in October.

For November, exports and imports are both expected to be larger. Exports have kept rising on strong demand for U.S. made capital goods. Solid growth abroad and a weakening dollar have made U.S. goods and services more attractive as well.

WHOLESALE SALES AND INVENTORIES - Wednesday, Jan. 10, 10 a.m. EST

Wholesale sales growth probably ticked higher in November. Sales dropped 0.5% in October and 1.5% in September, as demand for both durable and nondurable goods eased. A 5.1% fall in petroleum sales were mostly the result of lower oil prices. However, machinery, hardware, and lumber were also down a bit in both months.

The downward drag from petroleum prices should subside in November, as the average price of crude during the month was little changed from October. There was a bright spot in wholesale sales, as computers and other professional equipment rose decisively in both October and September.

The overall decline in sales meant a further buildup of inventories. The monthly gain in October was 0.8%, after a 0.7% increase. The growth in inventories was more concentrated in durable goods. Total wholesale inventories are up 10.1% from a year ago, the first double digit gain since April of 2005. Among durable goods the yearly rise was 11%.

Lower sales and larger inventories pushed up the inventory-to-sales ratio to 1.2 months, the higest level since June of 2005. The quick rise in this ratio implies the buildup in goods is unwanted. The November figures may show some evidence that wholesalers are already working down these additional stockpiles.

MEETINGS OF NOTE

Thursday, Jan. 11, 8 a.m. EST - Federal Reserve Bank of New York President Timothy Geithner speaks about developments in the global economy at a Council on Foreign Relations roundtable in New York City.

6:30 p.m. EST - Former U.S. Treasury undersecretary for International Affairs John Taylor addresses the Money Marketeers of New York University in New York City.

JOBLESS CLAIMS - Thursday, Jan. 11, 8:30 a.m. EST

Jobless claims grew to 329,000 in the week ended Dec. 30. In the prior week, claims were revised up slightly to 319,000, from 316,000 in the week ended Dec. 16. The weekly increase lifted the four-week moving average to 317,500, from 316,250 in the week ended Dec. 23.

Continuing jobless claims for the week ended Dec. 30 fell to 2.45 million, from 2.52 million in the week ended Dec. 23, and 2.51 million in the prior week.

FEDERAL BUDGET - Thursday, Jan. 11, 2 p.m. EST

The federal government is expected to post a surplus of $19 billion to finish off the calendar year. In December of 2005, the federal government ran an $11 billion surplus. Through the first two months of fiscal year 2007, the deficit stands at $124.9 billion, an improvement from the $130.3 total for fiscal year 2006. The smaller gap continues to be an income driven phenomena as tax receipts from businesses and individuals are still growing at a good clip.

RETAIL SALES - Friday, Jan. 12, 8:30 a.m. EST

November retail sales very likely turned in another solid month. In November, sales rebounded with a 1% jump, after declines of 0.1% in October and 0.6% in September. The November increase was led by a 4.6% surge in sales of electronics and appliances. Building material and garden store sales, along with those among nonstore retailers, were also strong. Nonstore retailers include Internet retailers and catalogs.

So far in the fourth quarter, retail sales have held up well. The strong pace of retail sales is a good sign for overall consumer spending for the final quarter of the year.

Sales excluding light vehicles are forecast to be a little softer than total sales. December light vehicle sales stood at an annual pace of 16.8 million, from 16.1 million in November. So far during the fourth quarter, sales minus light vehicles are running below the overall pace.

IMPORT AND EXPORT PRICES - Friday, Jan. 12, 8:30 a.m. EST

Import prices probably grew at a faster pace in December. Prices rose 0.2% in November, following declines of 2.3% and 2.2%, respectively, in October and September. Those declines were led by large drops in the price of crude oil. Outside of petroleum products, import prices rose 0.7% in November, and fell just 0.5% in October.

A softening dollar has translated into a gradual increase in prices for imported goods. Capital goods prices were up 0.2% from a year ago after falling during most of 2006. Prices for consumer goods were up by a yearly pace of 1.1% in November, the biggest rise since October of 2005. If the greenback keeps falling, as is widely expected, the current trend in import prices should continue.

The other side of a falling dollar is rising export prices. In December, export prices most likely rose some more, after a gain of 0.4% in November. Lower oil prices also impacted export prices, as the overall index for export prices fell in September and October on monthly price drops of 7.8% and 7.1%, respectively, for fuels and lubricants. But a weaker dollar and resilient economic growth abroad appears to be opening the door to a gradual upturn in export prices of capital and consumer goods. Capital goods prices grew 1.2% from a year ago in November, the biggest gain in more than a decade.

BUSINESS INVENTORIES - Friday, Jan. 12, 10:00 a.m. EST

Inventories grew at a slower pace in November, according to economists queried by Action Economics. Stockpiles of unsold goods held by retailers, wholesalers, and manufacturers increased by 0.4% in October, after a 0.3% gain in September. The yearly gain was 7.3% in October, slightly slower than the 7.5% increase from a year ago in September.

The recent run-up in inventories is due to a rapid deceleration in demand. Sales were down 0.2% in October and 2.3% in September. What's more, the yearly pace of sales stood at just 3.6%, from 4.6% in the September, and a recent peak growth rate of 9% in May. Consumer spending has been pretty strong in the fourth quarter, which should help businesses work down the added inventories. However, some manufacturers may face a slightly tougher time as the housing and auto industries struggle.

Already for November, manufacturers reported a 0.2% rise in inventories after a 0.3% gain in October. Shipments, however, were up just 0.1% in November.

Earnings Calendar

Day

Companies

Tuesday

Alcoa, Supervalu

Thursday

MGIC Investment, M&T Bank


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