Saturday, 1 December 2007

US consumer spending flat, eurozone inflation hits 3 percent

Growth in US consumer spending and income turned out unexpectedly weak in October. Reuters reports:

U.S. consumer spending inched up by an unexpectedly small 0.2 percent last month...

Personal income grew by just 0.2 percent in October, half the amount economists were expecting. Disposable income went up a scant 0.1 percent and when adjusted for inflation disposable income fell 0.1 percent.

Indeed, both spending and income had trouble keeping up with inflation.

While personal spending rose slightly, the Commerce Department said consumer prices climbed an even greater 0.3 percent, leaving inflation-adjusted spending flat in October after a slim 0.1 percent rise in September...

While the Commerce Department said consumer prices as measured by the personal consumption expenditures price index rose 0.3 percent, core prices that strip out volatile food and energy costs gained a more modest 0.2 percent.

And many home-owners have trouble keeping up payments.

A Federal Reserve Bank of of New York report on Friday showed that 12 percent of U.S. subprime adjustable-rate mortgages were delinquent by at least 60 days and 7 percent were in foreclosure.

As if there isn't enough bad news for housing, construction continued to suffer in October.

A separate Commerce Department report showed construction spending fell 0.8 percent as home building continued to wither. The drop was the biggest since July and it took construction spending down to a $1.158 trillion annual rate, the lowest in two years.

Manufacturing appears to be holding up though.

The National Association of Purchasing Management-Chicago business barometer rose to 52.9 from 49.7 in October, moving back into territory that indicates expansion after falling below the 50 break-even level in October.

And if positive economic data are in short supply, investors can always look to the US government.

U.S. stocks were up in early afternoon and prices for U.S. government securities fell as the gloomy data helped reinforce expectations the Federal Reserve would lower borrowing costs at an upcoming meeting on Dec. 11.

That sentiment was reinforced by Philadelphia Federal Reserve Bank President Charles Plosser who said there was uncertainty from the renewed turmoil in financial markets.

"We will watch and see and react as appropriate," he said.

A report that the U.S. Treasury will soon unveil a plan to help stem the subprime mortgage crisis also buoyed sentiment on Wall Street.

So the Fed will cut rates. Or else.

Or else it could do nothing. Like the ECB is likely to in the near future. From Bloomberg:

European inflation accelerated in November to the fastest in more than six years, adding pressure on the European Central Bank to raise interest rates even as economic expansion cools.

The inflation rate in the 13-nation euro area rose to 3 percent this month from 2.6 percent in October, the European Union's statistics office in Luxembourg said today. An index of executive and consumer sentiment fell to a 20-month low of 104.8 from 106 in October, according to a separate report, which also showed inflation expectations rising...

The statistics office said the economy expanded 0.7 percent in the quarter from the prior three months, unchanged from its initial estimate. It revised the annual growth rate to 2.7 percent from 2.6 percent.

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