Friday, January 12, 2007

Import Prices Bounce, Retail Sales Healthy

- Import Price Index for December rose 1.1% versus estimates of a .6% gain and an upwardly revised .5% increase in November.
- Advance Retail Sales for December rose .9% versus estimates of a .7% gain and a downwardly revised .6% increase in November.
- Retail Sales Less Autos for December rose 1.0% versus estimates of a .5% increase and a downwardly revised .7% gain in November.
BOTTOM LINE: Prices of goods imported into the US rose in December by the most in seven months, reflecting higher crude oil and natural gas costs, Bloomberg reported. Both commodities have since declined substantially. Import prices excluding petroleum rose 1.7% in 2006 versus a 2.4% gain in 2005. The back-to-back modest gains in import prices for November and December followed a 2.6% decline in October and a 2.2% drop in September, which were the greatest declines since record-keeping began in 1989. With the recent plunge in commodity prices, inflation readings a couple of months from now should show another substantial deceleration. I continue to believe inflation concerns have peaked for this cycle and will remain at below-average levels over the intermediate-term.

Retail sales in the US rose more than forecast in December, capping the strongest back-to-back gains in almost a year, as growing incomes kept Americans shopping, Bloomberg reported. Brisk sales at restaurants, electronics and department stores led last month’s gains. Sales at electronic and appliance retailers rose 3% after surging 5.8% in November. Restaurants sold 2.3% more meals. Gasoline prices are down 25% from August highs and poised to go lower on the recent plunge in oil. Workers’ average hourly earnings rose 4.2% year-over-year last month, more than twice the current rate of inflation as measured by the CPI. I expect retail sales to accelerate modestly to above-average levels over the coming months into the spring shopping season as sentiment makes new cycle highs, gas prices fall further, interest rates remain low, housing stabilizes at relatively high levels, auto production cutbacks subside and stocks rise further.

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