PPI Surges on Rise in Energy and Light Trucks, Retail Sales Double Estimates

- The Producer Price Index for November rose 3.2% versus estimates of a 1.5% increase and a .1% gain in October.

- The PPI Ex Food & Energy for November rose .4% versus estimates of a .2% gain and unch. in October.

- Advance Retail Sales for November rose 1.2% versus estimates of a .6% gain and a .2% rise in October.

- Retail Sales Less Autos for November rose 1.8% versus estimates of a .6% gain and an upwardly revised .4% increase in October.

- Initial Jobless Claims for this week fell to 333K versus estimates of 335K and 340K the prior week.

- Continuing Claims rose to 2639K versus estimates of 2599K and 2601K prior.

BOTTOM LINE: Prices paid to US producers climbed more than economists expected in November, pushed up by surging energy prices. Core prices rose .4%, the most since February, on a rise in the cost of light trucks. Core producer prices are rising at a 2% rate over the last year, just above the long-term average of 1.8% and down from 2.8% in July 2005. Energy costs rose 14.1%, a record one-month gain versus a .8% decline in October. Food prices were unchanged for the month. Computer prices fell 2.4% versus a 1.3% decline the prior month. Producer Price increases should show meaningful deceleration next month on the pullback in energy prices. The 10-year TIPS spread, a gauge of inflation expectations, is only 2 basis points higher on the news and is still down 15 basis points from levels seen two weeks ago. I continue to believe inflation fears have peaked for this cycle and that the secular trend of disinflation remains firmly in tact.

Retail sales exceed forecasts, rising twice as much as economist predicted in November, Bloomberg reported. Purchases at furniture, electronics, building-material, and department stores all increased. Morgan Stanley boosted their 4Q GDP growth estimate to 1.2% from .2% after the report. Excluding gasoline, autos and building materials, the number used to compute GDP, sales still gained a strong 1.1% versus a .2% gain the prior month. I continue to believe retail sales, including online sales, will exceed estimates for the entire holiday shopping season as low unemployment, strong wage growth, record consumer net worth and low interest rates more than offset the drag from energy and housing.