Saturday, 20 January 2007

All is well with the consumer

Reuters reports that consumer sentiment in the US improved in January.

The preliminary January reading on sentiment by the Reuters/University of Michigan Surveys of Consumers rose to 98.0 from 91.7 at the end of December.

This was the highest since 103.80 in January 2004 and well above the 92.5 median forecast of analysts polled by Reuters.

A robust economy helps.

Meanwhile, the Economic Cycle Research Institute said the outlook for the U.S. economy is growing more positive. The forecast firm said the annualized growth rate of its leading economic indicator rose to 4.4 percent in the week ending January 12 from an upwardly revised 4.1 percent in the previous week.

However, the weekly reading on U.S. economic growth slipped to 140.8 last week from a downwardly revised 141.7 in the previous week, ECRI said.

It is a similar story in the UK, where Christmas sales were strong, reports Reuters.

Retail sales rose twice as fast as expected last month -- sales volumes jumped 1.1 percent, the biggest monthly rise in 18 months and the best December reading in three years.

That took the annual rate up to 3.7 percent and even more impressive was the fact that retailers achieved bumper sales without cutting margins.

Retailers raised prices for a fourth consecutive month -- the longest run of increases since 1999.

There were some signs of moderation in the UK economy though.

Investors also had figures to digest on Friday showing money supply and mortgage lending growth moderated last month, albeit from very high levels.

Annual British broad money supply growth, identified by the Bank as a key contributor to inflation, eased to 12.8 percent from 13.1 percent in November. Underlying net mortgage lending rose 5.8 billion pounds last month, down from November's all-time high of 6.7 billion but still pointing to a robust housing market.

Consumer demand in the UK could also be boosted by accelerating wages. From another Reuters report:

Pay consultants Industrial Relations Services said a snapshot of 22 pay deals settled in January put the median wage settlement at 3.6 percent.

That was up from the 3.0 percent median for the three months to December -- a level that has been maintained for more than 3-1/2 years, IRS said.

Barry Ritholtz injects some caution into the interpretation of the US data, warning about past and potential revisions and the fact that recent months have been warmer than usual.

On the other hand, Felix Salmon at the Economonitor thinks that Ritholtz finds "the cloud in any silver lining" and instead points to the Intrade recession contract showing that the market thinks that the "chances of a recession in 2007 are just 21% and falling".

Incidentally, Barry Ritholtz also thinks that US inflation remains high, pointing out that the Cleveland Fed's median CPI showed a "+3.7% year over year increase" in December. Ironically, if sustained, this suggests that demand is likely to remain robust, since waning demand and price increases usually don't go together in the absence of supply disruptions.

In any case, the UK money supply data, coming in the wake of the BoJ's decision to hold interest rates and continued tight emerging market risk spreads, point to ample global liquidity that could help sustain consumer and asset demand.

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