Wholesale Inventories for November rose 1.1% versus estimates of a .7% increase and a 1.1% gain in October. Companies have been restocking to ensure enough goods are on hand after consumer spending grew at the fastest pace in almost three years during the third quarter, Bloomberg said. Inventory growth and rising demand are fueling orders, boosting production and helping boost economic growth. "Growth, particularly in consumer spending, has continued to surprise to the upside, so I think we may be back in a situation where inventory growth has been too small," said Stephen Stanley, chief economist at RBS Greenwich Capital. Wholesalers had enough supply on hand to last 1.15 months at the current sales pace. The ratio has held there since May, Bloomberg said.
The Trade Balance for November came in at -$60.3B versus estimates of -$54.0B and -$56.0B in October. The Monthly Budget deficit was -$3.4B versus estimates of $0.0B and -$17.6B in December 2003. The trade deficit unexpectedly grew in November as US demand for oil and consumer goods pushed imports to a record and exports fell as growth in Asia and Europe slowed. The imbalance with China accounted for more than a quarter of the total deficit, Bloomberg said. Tax receipts rose 16.0% in 2004 as tax cuts spurred economic growth, thus increasing corporate and personal incomes, Bloomberg said. The Congressional Budget Office said in its latest annual forecast that the budget deficit would shrink to $348B in 2005, Bloomberg reported. For the first three months of the fiscal year, the US budget deficit fell 8.9% from the prior year.
The Import Price Index for December fell 1.3% versus estimates of a .3% fall and a downwardly revised .2% decline in November. Imports account for about 15% of all goods and services bought in the U.S. The cost of imported petroleum fell 11.5% in December, the biggest drop since April 2003, after falling 5.7% the month before, Bloomberg reported.
Advance Retail Sales for December rose 1.2% versus estimates of a 1.1% increase and a .1% gain in November. Retail Sales Less Autos for December rose .3% versus estimates of a .4% increase and a .4% rise in November. Retail Sales rose 8% for the year, the most in five years. Excluding autos, retail sales surged 8.9%, the strongest performance in 12 years, Bloomberg reported. The economy created 2.2 million jobs in 2004, leading to a pickup in incomes that is likely to keep people buying and the economy expanding, Bloomberg said. "Once again the consumer proves healthier than expected, with big-ticket goods like furniture, appliances and autos leading the way," said Christopher Low, chief economist at FTN Financial.
Initial Jobless Claims for last week rose to 367K versus estimates of 340K and a downwardly revised 357K the prior week. Continuing Claims fell to 2631K, the lowest since April 2001, versus estimates of 2775K and 2850K prior. Claims for jobless benefits typically increase around the start of the year because of seasonal job cuts at retailers and construction companies, Bloomberg said. "We continue to feel that 2005 will see a sustained strengthening of the labor market," said Steve Pogorzelski, president of Monster North America, a unit of Monster Worldwide. Last year, payrolls averaged 185,920 a month. Job growth of about 100,000 to 150,000 is needed to keep pace with the increase in the labor force and keep the unemployment rate from rising, according to most economists.
The Producer Price Index for December fell .7% versus estimates of a .1% decline and a .5% increase in November. PPI Ex Food & Energy for December rose .1% versus estimates of a .2% increase and a .2% gain in November. "Inflation is still low in the absolute sense but the net of the recent data is that inflation is moving up and that keeps pressure on the Fed to keep raising rates," said James O'Sullivan, senior economist at UBS Securities. The price of gasoline fell 11.1% last month, the largest decline since April 2003, Bloomberg said. Moreover, Federal Reserve Bank of New York President Geithner said in a recent speech that "core inflation is moderate and various measures of inflation expectations suggest confidence in the outlook for price stability."
Business Inventories for November rose 1.0% versus estimates of a .6% increase and a .4% gain in October. The buildup, in conjunction with rising consumer spending, likely boosted economic growth in the final three months of the year and will help ease some of the negative impact of a high trade deficit on GDP in the quarter, economists said. The ratio of inventories to sales, a measure of how long goods remain in store at the current pace of demand, rose to 1.31 months, compared with October's record-tying low of 1.3 months, Bloomberg said.
Industrial Production for December rose .8% versus estimates of a .4% gain and a .2% increase in November. Capacity Utilization for December came in at 79.2% versus estimates of 78.9% and 78.6% in November. Gains in production of metals and computers helped push up the index, Bloomberg said. The manufacturing sector is doing very well," said Stephen Stanley. "We've seen continued strength in orders which bodes well for 2005."
Bottom Line: Overall, last week's economic data were modestly positive. Inventory gains are helping to boost economic growth and illustrate manager's confidence in the economy. The US trade deficit will likely worsen slightly before it gets better. The budget deficit should shrink this year as tax receipts remain strong and government spending decelerates. The rate of inflation will slow in 2005, with the CPI likely rising below its long-term average of 3.0%. The fact that retail sales, excluding autos, rose the most in 12 years last year is remarkable considering the negativity from the election, terrorism fears, worries over the financial health of the consumer and higher interest rates. The recent rise in jobless claims is likely the result of seasonal factors rather than real weakness in the labor market. Manufacturing has been exceptionally strong as of late and capacity utilization is nearing its long-term average of around 81.0%. The ECRI Weekly Leading Index has now declined the most in the last 2 weeks since before it began trending higher in 2002.
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