Core PPI Decelerates, Retail Sales Rebound, Confidence Falls, Inventories Decline

- The Producer Price Index for September rose 1.1% versus estimates of a .5% increase and a 1.4% decline in August.

- The PPI Ex Food & Energy for September rose .1% versus estimates of a .2% gain and a .2% increase in August.

- Advance Retail Sales for September rose .6% versus estimates of a .2% gain and a .3% increase in August.

- Retail Sales Less Autos for September rose .4% versus estimates of a .3% gain and a .4% decline in August.

- Preliminary Univ. of Mich. Consumer Confidence for October fell to 82.0 versus estimates of 84.0 and 83.4 in September.

- Business Inventories for August rose .1% versus estimates of a .2% gain and a .5% increase in July.

BOTTOM LINE: Prices paid to US producers rose in September as oil costs climbed, while core inflation was less than forecast, Bloomberg said. Over the last 12 months core producer prices rose 2.0% down from 2.2% the prior month. The increase in wholesale prices last month was led by a 4.1% gain in energy costs, the most since November. I expect producer prices to show meaningful deceleration over the intermediate-term as commodity prices decline from elevated levels.

Retail sales in the US blew past economists’ forecasts last month, reducing concerns that a consumer slowdown might drag the economy into recession, Bloomberg reported. Purchases at automobile dealerships and parts stores rose 1.2%. Sales at electronics and appliance stores rose .9%. Excluding autos, gasoline and building materials, the retail group the US government uses to compute GDP for consumer spending, sales gained .3% versus unch. in August. There remains little evidence of the imminent recession that so many have predicted over the last year. I expect retail sales to exceed estimates again next month as weather turns more seasonal and sentiment improves.

Confidence among US consumers this month fell to the lowest since August 2006, Bloomberg reported. The expectations component fell to 71.6 from 74.1 in September. However, the current conditions component, which is a gauge of Americans’ perceptions of their financial situation and whether it is a good time to buy big-ticket items, rose to 98.2 from 97.9 in September. Consumers also said they expect inflation to rise 3.0% in a year versus expectations of a 3.1% increase last month. The S&P 500 touched its second record high this week and has gained 11% since mid-August. I expect consumer confidence to rebound significantly over the intermediate-term as housing fears subside, stocks continue to rise, interest rates remain low, inflation decelerates further, energy prices decline, incomes continue to substantially outpace inflation and unemployment remains historically low.

Inventories at US businesses rose less than forecast in August. Sales fell .4%. I continue to expect manufacturing to help boost overall US growth over the intermediate-term as companies gain confidence in the current expansion and rebuild depleted inventories.