Housing and consumer indicators show resilience

Perhaps the US housing market isn't cooling after all. Reuters reports the latest new home sales figures:

The Commerce Department reported that new home sales rose 13 percent in October to a record 1.424 million annual rate, apparently contradicting other signs that the U.S. housing market may be coming off the boil...

But the report also showed that home prices were not rising at quite the same pace -- up 1.6 percent -- and the number of homes still on the market reached a record 496,000.

...as well as consumer confidence:

The Conference Board said its November index of consumer confidence rose to 98.9 from an upwardly revised 85.2 in October, beating Wall Street forecasts of a rise to 90.0.

...durable goods orders:

A government report earlier showed new orders for durable goods -- expensive items intended to last three years or more -- rose 3.4 percent in October, outstripping forecasts of a rise of 1.1 percent... September durable goods orders were revised upward to show a 2.0 percent decline, from a 2.4 percent fall.

October orders outside the transportation sector rose just 0.3 percent, falling short of forecasts of a 1.0 percent increase. Non-defense capital goods orders excluding aircraft, seen as an proxy for business spending plans, rose 1.3 percent.

...and chain store sales:

The International Council of Shopping Centers and UBS said in a joint report that retail sales grew 5.1 percent in the week ended November 26 compared with the same week a year earlier. It was the strongest year-over-year performance since June 12, 2004. But they were down 0.7 percent compared with the previous week.

A separate report by independent firm Redbook Research showed sales in November were up 0.3 percent from the same period in October and gained 4.4 percent on a year-over-year basis for the week.

If the trend in the US housing market isn't too clear, the same could be said of that in the UK, where house prices were flat in November:

House prices stagnated in November, dragging down the annual rate of increase, the Nationwide building society said on Tuesday in further evidence the property market remains broadly flat.

The mortgage lender said seasonally adjusted house prices were unchanged after jumping 1.3 percent in October...

The annual rate of house price inflation slipped back to 2.4 percent after picking up to 3.3 percent in October -- a rise that both the Nationwide and analysts concluded was temporary.

...even as mortgage approvals rose to their highest level in almost a year and a half in October.

Official data showed the number of loans agreed for house purchase, widely viewed as a good indicator of house prices six months out, rose to 113,000 in October from an upwardly revised 108,000 the month before. That was the highest since May 2004...

There was a stronger than expected pick-up in mortgage lending growth to 7.634 billion pounds in October compared to 7.505 billion pounds the month before and the highest since May...

[C]onsumer credit figures...showed the annual growth rate of unsecured borrowing was at its slowest in over a decade. Consumer credit grew by a slightly smaller amount than forecast for October to be up 1.273 billion pounds after 1.211 billion pounds the month before.

Meanwhile, a press release from the ECB showed that the rate of growth of credit in the euro-zone increased in October even as the rate of growth of M3 slowed.

The annual rate of growth of M3 decreased to 8.0% in October 2005, from 8.4% in September 2005... Regarding the main components of M3, the annual rate of growth of M1 was 11.2% in October 2005, compared with 11.1% in September...

[T]he annual growth rate of total credit granted to euro area residents rose to 7.7% in October 2005, from 7.3% in September... the annual rate of growth of loans to the private sector rose to 8.8% in October, from 8.6% in the previous month.

As The Prudent Investor comments:

The marginally slower trend is still running at the highest levels seen since the inception of the Euro in 2002. Only 12 months ago M3 accelerated at an annual rate of comparatively moderate 5.8%.

Mixed data on housing, consumer outlook but industrial output strong

There were more signs yesterday of a cooling housing market in the US. From the National Association of Realtors:

Total existing-home sales -- including single-family, townhomes, condominiums, and co-ops -- were at a seasonally adjusted annual rate of 7.09 million units in October, down 2.7 percent from September’s pace of 7.29 million. Sales were 3.7 percent above the 6.84 million-unit level in October 2004...

The national median existing-home price for all housing types -- including single-family, townhomes, condominiums, and co-ops -- was $218,000 in October, rising 16.6 percent from October 2004 when the median price was $187,000...

Total housing inventory levels rose 3.5 percent at the end of October to 2.87 million existing homes available for sale, which represents a 4.9-month supply at the current sales pace.

This may or may not impact US consumer confidence in the near future, but in Germany, consumer confidence is already declining, as Bloomberg reports.

Consumer confidence in Germany, Europe's largest economy, fell for a second month in three as Chancellor Angela Merkel's government decided to raise sales tax.

GfK's confidence index, based on a November survey of about 2,000 people that aims to forecast household spending one month ahead, fell to 3.1 from last month's revised 3.3 reading, the Nuremberg-based market-research company said in an e-mailed statement today. GfK reiterated its forecast that private consumption won't increase more than 0.2 percent this year.

Meanwhile, the data coming out of Japan continues to be contradictory. Retail sales were down:

Japan's retail sales fell in October as consumers spent less on cars and clothing, suggesting growth in the world's second-largest economy is slowing.

Sales fell 0.3 percent, seasonally adjusted from September, after a 0.8 percent drop that month, the Ministry of Economy, Trade and Industry said in a report in Tokyo today...

From a year earlier, sales at supermarkets, department stores, restaurants and other retailers fell 0.3 percent, the first decrease in 8 months. That compares with a rise of 0.5 percent according to the median of 12 economists in a Bloomberg News survey.

...but household spending was up even though the unemployment rate rose:

Japan's households spent more for the second month in five in October as higher wages and better job prospects fueled demand, helping to support expansion in the world's second-largest economy.

Spending by households headed by a salaried worker rose 1.2 percent to 325,501 yen ($2,737), seasonally adjusted from September, the statistics bureau said in Tokyo today. The median estimate of five economists in a Bloomberg survey was for a 0.5 percent rise. Unemployment rose to 4.5 percent, a separate report said, higher than the median estimate of 35 economists in a Bloomberg survey for it to remain unchanged at 4.2 percent...

Household spending rose 1.3 percent in October from the same month a year earlier, the statistics bureau said today.

There was less ambiguity in Japanese industrial production, which continued to improve in October although by less than expected.

Japanese companies increased production for a third month in October to meet rising overseas demand, adding to evidence growth in the world's second-largest economy will accelerate this quarter.

Industrial production climbed an adjusted 0.6 percent after rising 0.4 percent in September, the Ministry of Economy, Trade and Industry said today in Tokyo. The gain lagged behind the median 1.3 percent forecast of 36 economists surveyed by Bloomberg News and capped a third month of gains, the longest run since November 2003...

Major Japanese companies will increase capital investments by 15.2 percent this business year, the Nihon Keizai newspaper said yesterday, citing its own survey of 1,762 companies nationwide.

Industrial production was also strong in South Korea:

South Korea's industrial production rose for a fifth month in six in October, helped by record exports and the end of strikes at Hyundai Motor Co. and Kia Motors Corp., the nation's two-biggest automakers.

Output gained a seasonally adjusted 1 percent from the previous month after increasing a revised 2.4 percent in September, the National Statistical Office said today. That matched the median forecast of six economists surveyed by Bloomberg News. From a year earlier, output gained 8 percent, the fastest pace since January...

In a separate report, the central bank said today that South Korea's current account surplus rose to $3 billion in October, the highest in nine months, as exports gained at a record pace.

...and in Singapore:

Manufacturing growth was maintained in October with output increase of 17.6% over October last year. Higher output came from all clusters, especially the transport engineering, biomedical manufacturing and electronics clusters. Excluding the biomedical manufacturing cluster, manufacturing output rose by 15.3%. The three-month moving average for October showed total manufacturing output grew by 17.0%. For the seasonally adjusted month-on-month growth, manufacturing output increased by 0.1%. Cumulatively, total manufacturing output grew by 8.6% in the first ten months of 2005 compared to the same period last year.

Liquidity feeds bull for year-end

The end of the year has traditionally been associated by investors with a stock market rally. While the month of October had been a nervous one for investors, stock markets around the world appear to have regained their poise and look ready to deliver some festive cheer to investors.

With a few trading days left, November has so far proven to be a good month for stocks, reversing the losses in the previous month and leaving most of the major stock indices at or near their year highs.

	Close on 31 Oct	Close on 25 Nov	Percent change
S&P 500	1,207.01	1,268.25	5.1
Nikkei 225	13,606.50	14,784.29	8.7
FTSE 100	5,317.3	5,523.8	3.9
DAX	4,929.07	5,194.27	5.4
CAC 40	4,436.45	4,600.48	3.7
Hang Seng	14,386.37	15,081.47	4.8
Straits Times	2,216.77	2,295.73	3.6

The gains in November also mean that the global equity bull market remains intact. And this, in itself, is quite a remarkable fact.

With the collapse of stock prices from 2000 after the equity bubble of the late 1990s, many analysts had expected a prolonged secular bear market interrupted periodically by short rallies. However, although most of the major indices have not regained their 2000 peaks, in terms of duration, the current bull market has now lasted around two and half to three years, pretty long for what is supposed to be just a cyclical rally in a longer-term bear market.

If this bull market has proven surprisingly resilient, an important factor must surely be ample liquidity. Despite all the noises made on rising inflation concerns of late, central banks have in fact not been particularly aggressive in tightening monetary policy. For example, despite well over a year of interest rate hikes, the Federal Reserve's target fed funds rate is currently at 4.0 percent, below the latest reported US annual inflation rate of 4.3 percent in October. And the European Central Bank has not raised interest rates for more than five years.

The resulting growth in global money supply was highlighted by Morgan Stanley economist Joachim Fels in a commentary in the Global Economic Forum on 8 November. In the commentary, he said that this year, global narrow money growth has outpaced global nominal GDP growth by 1.4 percentage points, broad money growth has outpaced GDP by 2.7 percentage points, and credit growth has outpaced GDP by 3.6 percentage points. Fels added that while the Federal Reserve's ongoing tightening campaign has led to a slight decline in excess liquidity in the US, there has been a significant increase in excess liquidity in the euro area.

All this liquidity, of course, is fuel, not just for the real economy but for asset markets as well. And Fels expects the excess liquidity to persist. "Aggressive central bank rate hikes to mop up excessive liquidity...are unlikely, in my view," he wrote. That leads him to think that "excess liquidity will likely stay around" and that "the next bubble could well occur in equities".

Other analysts, while expecting a short-term rally into the end of the year, are more cautious going into 2006. The view of Stephen Leeb, president of Leeb Capital Management and editor of The Complete Investor newsletter, expressed in an interview given to BusinessWeek Online on 17 November, is typical among these analysts. "Stocks are on an uptrend and will finish the year on highs," he said. "But past January, problems will surface. It will be hard to control inflation, and that's a hard environment for stocks."

Some analysts in Asia have similar views. In a report on 23 November, The Business Times cited Lee King Fuei of Schroders Investment Management as saying that "there are more headwinds to equities" partly because interest rates are "in a normalising process", but while rates are nearer to being neutral, "there is still some distance to go".

In the same report, Martin Lau, First State Investments director (Greater China equities), was quoted as saying: "Asian economies are very strong, but things will start to roll over in 2006 because of a higher base. Investors should be aware that things on the margin are slowing."

And there are indications that the US stock market may roll over in 2006 too. In a commentary on 21 November, John Hussman of the Hussman Funds pointed out that the current rally in the US market lacked breadth and is being led by low-quality stocks. "Historically, garbage stock rallies like this are a hallmark of the late, narrowing, impatient, speculative phase of a bull market," he said.

While Hussman's point raises concerns about how much longer the ongoing rally can last, it also highlights the impact that excess liquidity is having on the demand for equities. And that liquidity may mean that investors hoping for a year-end rally in equities might just get their wish fulfilled.

German prices down on oil

Inflation rates around the world are mainly being driven by oil prices, as reflected again in the German data reported by Bloomberg yesterday.

Consumer prices in Germany, Europe's largest economy, fell the most in almost 15 years this month as oil costs declined.

Prices dropped 0.5 percent from October, the biggest decline since records for a reunified Germany began in January 1991, the Federal Statistics Office in Wiesbaden said today. Economists expected a 0.3 percent decline, the median of 38 estimates in a Bloomberg survey showed. The annual inflation rate was unchanged at 2.3 percent...

German consumer prices according to the European Union's harmonized index fell 0.4 percent from October and gained 2.5 percent from a year earlier.

It was a similar story for German October import prices reported by Bloomberg the day before.

Import price inflation in Germany, Europe's largest economy, slowed in October as oil prices retreated from a record.

Import prices rose 4.3 percent from a year ago after gaining 5.1 percent in September, the fastest annual pace since January 2001, the Federal Statistics Office in Wiesbaden said in a faxed statement today. Economists expected the rate to slow to 3.5 percent in October, the median of 21 forecasts in a Bloomberg survey showed. From September, prices rose 0.4 percent.

German business confidence and Japanese trade surplus fall but Japanese prices don't

Angela Merkel's reign as chancellor has not started too auspiciously, with German business confidence falling in November.

German business confidence in November retreated from a five-year high, led by pessimism among retailers, as the European Central Bank prepared to raise interest rates and the country's new government announced tax increases.

The Ifo confidence index, derived from a monthly survey of 7,000 executives, declined to 97.8 in November. Economists expected the Munich-based institute's indicator to slip to 98.6 after reaching a revised 98.8 last month, the highest since October 2000, according to the median of 44 estimates in a Bloomberg survey. The euro fell and bonds rose.

But it's not all negative in Europe.

In contrast to today's Ifo report, business confidence in France, the largest economy in the 12-nation euro region after Germany, rose to a nine-month high, the French statistics office reported today. A report yesterday showed Italian consumers are the most optimistic in three years.

Meanwhile, Japan's trade surplus shrank in October.

Japan's trade surplus...fell 28.8 percent in October from the same month a year earlier to 822.1 billion yen ($6.93 billion), the Ministry of Finance data showed...

Imports jumped in October, driven by a 49.5 percent rise in the value of crude oil imports. Overall imports rose 17.8 percent to 5.09 trillion yen...

Exports in October rose 8.0 percent from a year earlier to 5.91 trillion yen, helped by higher exports of automobile and steel.

On a seasonally adjusted basis, the trade surplus was 719.7 billion yen, up 23.8 percent from September.

Perhaps more interestingly, Japan's core inflation rate moved out of negative territory in October.

Japan's consumer prices stopped falling in October for the first time since May, signaling that deflation may end soon, prompting the Bank of Japan to start reducing the amount of money it pumps into the economy.

Core prices, which exclude fresh food, were unchanged from a year earlier, the government's statistics bureau said today in Tokyo, matching a median forecast of 32 economists in a Bloomberg survey. Core prices fell 0.1 percent in August and September.

But it is still falling in Tokyo.

Core prices in Tokyo, home to one in 10 Japanese, fell 0.3 percent in November from a year earlier, the same as October, the statistics bureau said.

US consumer sentiment, Canadian leading indicator and European industrial orders up

US consumer sentiment rose in November. Apart from that, the US economic data reported yesterday were quite mixed.

Reuters reports the US consumer sentiment:

The University of Michigan's final reading of consumer sentiment for November rose to 81.6 from 74.2 in late October, beating analysts' forecasts of a rise to 80.5, according to sources who saw the subscription-only report.

...employment situation:

Another report from the Labor Department showed the number of U.S. workers filing new claims for jobless benefits rose by a larger-than-expected 30,000 last week, taking claims to their highest point since mid-October.

Initial claims for state unemployment aid rose to a seasonally adjusted 335,000 from a revised 305,000 the previous week, above Wall Street forecasts of 315,000...

The Conference Board said its gauge measuring help-wanted ad volume in the United States was at 38, compared with a downwardly revised 38 in September. The September reading was originally reported at 39.

...housing market:

U.S. mortgage applications fell last week, as home refinancings hit a 16-month low as interest rates neared their highest for a year.

The Mortgage Bankers Association said its index of mortgage application activity for the week ended November 18 fell to 635.4, marking a 3.4 percent fall on the prior week.

...and leading indicator:

The Economic Cycle Research Institute, an independent forecasting group, said its weekly leading index fell to 134.9 in the week ended November 18, from 135.8 the week before.

Meanwhile, Canada's leading indicator gained in October.

The leading indicator posted a solid 0.5% gain in October, up from a 0.4% advance in September. Recent months have seen a shift in growth from household spending to investment demand. Housing was the only one of the ten components to decline, compared with two in September.

And European industrial orders were up in September.

The euro-zone industrial new orders index rose by 1.1% in September 2005 compared to August 2005. The index increased by 0.1% in August and fell by 1.5% in July. EU25 new orders rose by 0.6% in September 2005, after falling 0.3% in August3 and remaining unchanged in July.

In September 2005 compared to September 2004, industrial new orders increased by 4.6% in the euro-zone and by 5.5% in the EU25.

Japan's tertiary index falls, UK factory orders at 2-year low

Japan's recovery continues on its hesitant path. Bloomberg reports the September tertiary index.

Japan's service industries shrank more than expected in September from a record in August, as consumers and companies spent less.

The tertiary index dropped 0.7 percent to 106.7 after matching a record 107.5 in August, the trade ministry said today. For the quarter, the tertiary index rose 0.3 percent.

Meanwhile, the outlook for the UK manufacturing sector remains weak, according to another Bloomberg report.

U.K. factory orders remained close to a two-year low in November, a sign manufacturers are struggling to avoid recession, a survey by Britain's biggest business lobby group showed.

An index of new orders kept at minus 25 in November, according to the survey of 683 manufacturers by the Confederation of British Industry published today...

Manufacturers don't expect output to pickup in the months ahead either, the survey showed...

The CBI's survey paints a bleaker picture of manufacturing than others do. The Chartered Institute of Purchasing & Supply's index of factory purchasing managers rose to a 10-year high of 51.7 in October...

Outlooks for US, UK economies positive but China worried by deflation

The Conference Board's leading index for the US economy is on the rise again.

The Conference Board announced today that the U.S. leading index increased 0.9 percent, the coincident index increased 0.1 percent, and the lagging index increased 0.8 percent in October.

The leading index increased sharply in October offsetting the large decrease in September, which partly reflects the economic impact of the hurricanes which hit the Gulf region in late August and September. In addition, October’s increase was widespread among the leading indicators. The largest positive contributors to the leading index were (inverted) initial claims for unemployment insurance and average weekly hours in manufacturing, whereas the largest negative contributors were housing permits and stock prices...

The leading index now stands at 137.9 (1996=100). Based on revised data, this index decreased 0.8 percent in September and remained unchanged in August. During the six-month span through October, the leading index increased 1.2 percent, with seven out of ten components advancing (diffusion index, six-month span equals seventy percent).

However, as the Conference Board points out, the latest data on the housing market is a source of concern, while Calculated Risk points out that housing affordability has fallen amid rising home prices and interest rates.

But house prices in the UK have proven resilient so far, as Reuters reported yesterday.

House price inflation picked up to an annual 3.3 percent in September from 2.8 percent the month before, the government said on Monday... A report overnight from property Web site Rightmove showed that house prices climbed 0.8 percent between October 9 and November 12 compared with a rise of 0.5 percent in the previous period, the biggest rise since April.

That resilience probably extends to the rest of the UK economy, if a recent Reuters poll of economists is anything to go by.

The poll of 30 economists gave mid-range forecasts for economic growth to average 2.2 percent in 2006, up from an estimated 1.7 percent this year, helped by better export prospects and lower interest rates... Despite high oil prices, inflation is expected to remain relatively subdued, thanks partly to an uncertain jobs market keeping a lid on wage claims.

But in China, deflation worries persist.

Beijing University economics professor Justin Lin noted that China's retail price index was flat in September... "I think deflation is likely to occur later this year or early next year because investment has been growing rapidly," Lin told an economics forum in Beijing. Inflation for all of 2006 would be low, at around 1 percent, Lin added... Lin said he expected investment growth, concentrated in real estate, autos and construction materials, to continue to grow strongly in 2006 because, unlike in the West, Chinese investors were less sensitive to signals suggesting falling prices.

And a possible slowing in China's demand for oil might also moderate inflation worldwide.

It is estimated that China will import 130 million tons of crude oil in 2005, rising only six percent year on year. This means the rate of growth of oil imports has dropped 30 percent, said Lu [Jianhua, Director of Foreign Trade Department of the Ministry of Commerce].

The next Intel?

The tech-heavy Nasdaq may have performed well over the past few weeks, but technology investing is no longer the preserve of the US market. South Korea is also a tech-heavy market. And there is none heavier there than Samsung Electronics, often touted as the next Sony, now also possibly the next Intel, according to this BusinessWeek report.

Samsung is hoping to get in early on more nascent technologies -- and is devoting big bucks to help make that happen. On Nov. 8, Samsung Group, Korea's largest conglomerate, or chaebol, said it would lay out $45 billion for research and development over the next five years. At Samsung Electronics alone, R&D spending this year is likely to top $5.2 billion, up from $2.3 billion in 2001. As a percentage of sales, that still lags behind Intel Corp., but it's better than such research powerhouses as IBM, Motorola, Sony, and Canon. By 2010, the chaebol expects annual earnings of $28.6 billion on sales of $257 billion, up from profits of $18.1 billion and revenues of $129 billion last year. "We want to lead the evolution to the next generation of technology," says Lee Ki Tae, president of Samsung's telecom division.

US housing starts fall but most other indicators positive

I've been reluctant to call an end to the US housing boom, but it does look more and more like we are at or near the top. Reuters reports the October housing starts data:

A sharp drop in U.S. housing starts and permits for new building in October pointed to some cooling in the red-hot real estate market... [T]he Commerce Department said housing starts fell 5.6 percent to a 2.014 million unit annual rate, while permits for future groundbreaking fell 6.7 percent -- the biggest decline in six years.

Industrial output, on the other hand, is holding up well.

The Philadelphia Federal Reserve Bank said its business activity index fell to 11.5 in November from 17.3 in October, but the number tends to fluctuate from month to month... A separate report from the Federal Reserve showed a 0.9 percent rebound in industrial output from U.S. factories, mines and utilities in October. It was the fastest rate since May 2004.

The employment picture isn't too bad either.

[T]he number of U.S. workers filing for initial jobless claims fell sharply last week, hitting the lowest level since April and fully recovering from the impact of the recent hurricanes. First-time claims for state unemployment insurance benefits dropped 25,000 to 303,000 last week, the Labor Department said, below expectations, and suggesting the next payroll employment report could top 200,000.

Europe's industrial output, however, slowed in September.

Seasonally adjusted industrial production fell by 0.4% in the euro-zone in September 2005 compared to August. Production increased by 0.8% in August and by 0.1% in July. Output in the EU25 remained stable in September 2005, after increases of 0.4% in August and of 0.1% in July.

But in the UK, retail sales continue to recover, although at some expense to margins.

Retail sales rose for the third month running in October, indicating the sector may be recovering after a sharp slowdown earlier in the year. The Office for National Statistics said on Thursday sales rose 0.2 percent last month... Prices were on average 1.1 percent lower than a year earlier, the biggest decline since February.

The European Commission thinks the continent's recovery remains on track, according to this FT report.

Europe's economy is accelerating out of its recent trough, according to new forecasts from Brussels, but stubborn inflation and high government borrowing could hasten an early interest rate rise in the eurozone.

Resurgent domestic demand should help to drive growth in the European Union from 1.5 per cent this year to 2.1 per cent in 2006 and 2.4 per cent in 2007, the European Commission said.

And Asia also seems to be re-accelerating, with good growth from both Singapore:

Singapore's economy sprinted to a better-than-expected 7.0 percent expansion in the third quarter, prompting the government Thursday to up its 2005 growth target to 5.0 percent... The September quarter's growth acceleration was the economy's best showing in four quarters and well ahead of the second quarter's 5.4 percent. On a quarter-on-quarter basis, gross domestic product (GDP) grew 7.1 percent, after the previous gain of 19 percent.

...Singapore's key non-oil domestic exports (NODX) [was] up 9.8 percent in October, coming in well above forecasts on the back of stronger electronics orders.

...and Taiwan:

Taiwan's economy expanded in the third quarter at the fastest pace in a year as a pickup in global electronics demand boosted exports and falling unemployment spurred spending at home.

Gross domestic product rose 4.4 percent from a year earlier after climbing 3 percent in the second quarter, according to an official who asked not to be identified... The statistics bureau raised its 2005 growth forecast to 3.8 percent from 3.65 percent, he said.

Surprise jump in October US CPI but inflation moderate elsewhere

It was mostly about inflation yesterday. Reuters covers the US CPI:

Consumer prices gained 0.2 percent last month, topping Wall Street forecasts for a flat reading as the largest housing cost gain in nearly five years overwhelmed a dip in energy prices. Excluding food and energy, prices also gained 0.2 percent in the month...

Over the past year, consumer prices have jumped 4.3 percent, but core inflation has remained relatively tame, up 2.1 percent in the same period.

...as well as weekly earnings and business inventories:

In a separate report, the Labor Department said real average weekly earnings rose 0.4 percent in October, the first gain in four months and the largest since July 2004.

A report out of the Commerce Department showed business inventories grew a faster-than-expected 0.5 percent pace in September but remained historically lean, indicating stronger stock rebuilding may be on the cards.

Meanwhile, Eurostat affirmed its earlier euro-zone inflation estimate:

Euro-zone annual inflation was 2.5% in October 2005, down from 2.6% in September. A year earlier the rate was 2.4%. Monthly inflation was 0.3% in October.

EU25 annual inflation was 2.4% in October 2005, down from 2.5% in September. A year earlier the rate was 2.3%. Monthly inflation was 0.2% in October.

And the Bank of England appears sanguine about inflation in the UK.

Interest rates could stay on hold for months to come, the Bank of England indicated on Wednesday, when it said inflation was on course to meet its 2.0 percent target.

In China, the People's Bank of China had reported on Tuesday that its commodities price index had dropped 0.3 percent in October but had risen 0.9 percent from last October's report while the CPI had risen 2.9 percent year-on-year for the January-October period. Yesterday came news that investment growth in China remains strong.

Investment in China's factories, roads and other fixed assets grew 27.6 percent in the first 10 months of the year... Fixed-asset investment in towns and cities climbed to 5.58 trillion yuan ($690 billion), the Beijing-based National Bureau of Statistics said on its Web site. For October alone, investment rose 27.2 percent.

Mixed signals from prices, retail sales and German confidence

Plenty of economic news out yesterday. Reuters reports several of them, including US producer prices:

U.S. producer prices rose in October as soaring home heating costs offset cheaper gasoline... The Labor Department said prices received by farms, factories and refineries rose 0.7 percent last month...

Outside the volatile food and energy sectors, however, so-called core producer prices fell a surprise 0.3 percent in October despite economist forecasts for a 0.2 percent rise... The report on producer prices showed a big drop in automobile prices helped depress core inflation in October...

The 12-month increase in producer prices was 5.9 percent, largely due to a 26.1 percent increase in the cost of finished energy goods.

...retail sales:

A separate report from the Commerce Department showed retail sales dipped a smaller-than-expected 0.1 percent in October. Car sales were weak... shedding 3.6 percent in the month -- but retail sales excluding autos rose a robust 0.9 percent...

Target Corp. said November sales at stores open at least a year would come in below earlier forecasts... Wal-Mart Stores Inc...expected a good holiday season...

The International Council of Shopping Centers and UBS said sales rose 3.9 percent last week compared to last year, while Redbook Research found sales at major retailers up 3.5 percent over the same period.

...and manufacturing:

The New York Fed's Empire State index showed overall conditions for manufacturers rose to +22.82 from +12.08 in October, which was the weakest level in five months... The survey's employment index also rose to its highest level in over a year.

Bloomberg has economic news out of Europe.

German investor confidence unexpectedly declined in November... A gauge of institutional and analyst expectations fell to 38.7 from 39.4 in October, the ZEW Center for European Economic Research said today...

Euro-region growth accelerated to 0.6 percent in the third quarter from 0.2 percent in the three months through June, Luxembourg-based Eurostat said, exceeding the 0.5 percent median forecast of 39 economists in a Bloomberg survey. Germany's economy also expanded 0.6 percent from the second quarter...

In the U.K., Europe's second-largest economy, inflation slowed for the first time in more than a year in October. The annual rate of consumer-price increases moderated to 2.3 percent from 2.5 percent in September, the Office for National Statistics said today.

The fall in UK consumer price inflation followed a fall in producer price inflation reported the day before.

Factory gate inflation in the UK fell sharply in October, driven by a decline in scrap metal prices, according to official figures released on Monday.

Producer output prices dropped 0.1 month-on-month, compared with forecasts of a 0.2 per cent increase, taking the annual inflation rate down from 3.3 per cent to 2.6 per cent. Core prices, which exclude food, beverages , tobacco and petroleum, fell 0.3 per cent in October, compared with September, leaving the annual core rate at 1.3 per cent against 2.1 per cent the previous month...

Input prices rose a seasonally adjusted 0.3 per cent month-on-month, reflecting an increase in fuel costs, and rebounding from September's 0.4 per cent decline. But for the year, input price inflation fell from 10.2 per cent in September to 7.7 per cent in October.

China Daily reports the rise in retail sales in China:

China's retail sales rose by 12.8 per cent in October compared to the same month last year, accelerating slightly from the 12.7 per cent growth in September.

...as well as in industrial production:

China's industrial output in October totaled 632 billion yuan (US$78 billion; euro67 billion), the National Bureau of Statistics said, with the annual rate of growth slowing to 16.1 percent from 16.5 percent in September.

While some Chinese officials say both export demand and domestic demand are supporting strong growth in output, members of the country's top planning agency are starting to warn of overcapacity.

The latter report on China probably provides a good perspective on global inflationary trends, and reminds us that even as we look at inflation indices that exclude energy prices that are pushed up by Chinese demand, we need to be mindful of inflation data that incorporate prices that are pushed down by Chinese supply.

Investors bullish but complacent?

Morgan Stanley's chief economist Stephen Roach thinks investors are complacent about the investment outlook.

There was a decidedly bullish tone to our 21st annual Global Investment Roundtable in Lyford Cay...

Fully three-fourths of the assembled investors thought US equities would rise through mid-2006. The group was also optimistic on Japanese equities, but the bullish margin was considerably thinner. And by a factor of two-to-one, the Lyford consensus was bearish on European stocks. The group was relatively bullish on the interest rate outlook: Fully two-thirds of the assembled investors thought the federal funds rate would remain below 4.75% by mid-2006, and only a couple of lonely souls took the bearish side of a 5.5% call on 10-year Treasuries over the same period. The bulk of the crowd thought oil prices would remain below $60 through mid-2006. Finally, the currency view was overwhelming populated by euro-bashers, although the group was more evenly divided over the yen outlook...

The elastic world can certainly take some tough body blows. But...[t]he elasticity of globalization hardly provides a guaranty of immunity from macro shocks. The final word from Lyford Cay came from another veteran who noted, "We all know these imbalances you speak of are unsustainable -- we just can’t afford to focus on the endgame." Elasticity or complacency? To me, it sounds more like the latter -- and even more like denial.

His colleague Andy Xie is similarly bearish for 2006.

The current round of growth optimism may last six months. Two factors could cause growth expectations to turn down by mid-2006: (1) the tightening by major central banks could start to bite by that time; and (2) the property bubble has already begun to deflate in China and the US, which could become a major headwind for growth by the middle of next year...

There has been a close correlation between the increase in risk appetite and decline in interest rates, making monetary policy more potent than usual in this cycle. This has been the principal reason for the numerous bubbles that have elevated global growth. As monetary conditions reverse, the risk appetite may reverse also. Many financial bubbles could deflate in 2006, bringing down the global growth rate.

Japan's current account surplus widens, more surpluses in oil exporters, but no more M3 in US

Japan's current account surplus widened in September.

Japan's September current account surplus unexpectedly widened as exports rose to a record, reinforcing expectations that growth in the world's second- largest economy will accelerate.

The surplus increased 6.5 percent to 1.86 trillion yen ($15.8 billion) compared with the same month a year ago, the Ministry of Finance said in a report released in Tokyo today. Exports climbed 8.9 percent from a year earlier.

However, Brad Setser reminds us that it is no longer just countries like Japan or China that have large current account surpluses.

[T]he really big current account surpluses were found in the oil exporting countries, not in Asia. Russia's q3 trade surplus was nearly $35 billion; judging from that data point, the combined current account surplus of the major oil exporters probably came in at well over $100 billion in the third quarter.

Setser griped that much of the assets purchased by gulf countries with petrodollars are "bloody hard to track". However, soon, some of that lack of transparency will extend to US data as well. The Prudent Investor and The Big Picture bring news that the Federal Reserve System will cease publication of the M3 monetary aggregate.

Japanese economy slows with capital spending, Chinese inflation gain on food

Japan's GDP growth slowed in the third quarter but was still faster than expected, Bloomberg reports.

Japan's economy...expanded at an annual 1.7 percent pace, beating the 1.1 percent median estimate of 31 economists surveyed by Bloomberg News. Gross domestic product rose 3.3 percent in the second quarter and a revised 6.3 percent in the first, the Cabinet Office said today in Tokyo...

Growth slowed in the third quarter as capital spending eased from its fastest annualized pace in more than a decade... [C]onsumer spending, which grew at the fastest pace in more than a decade in the first half...climbed 0.3 percent...

Confidence among households with two or more people rose to 47.9 from 45.5 in September, the Cabinet Office said today.

In other news out of Japan yesterday, the Ministry of Economy, Trade and Industry has revised Japan's industrial output for September to a seasonally-adjusted 0.4 percent gain from a preliminary 0.2 percent gain.

Meanwhile, China continues to see moderate inflation.

China's consumer price index (CPI) rose 1.2 percent in October, official data shows, mainly due to an uptick in food prices... The rise compared with a year-on-year gain of 0.9 percent in September, the National Bureau of Statistics (NBS) said in a statement...

On Thursday, NBS data showed that wholesale prices in China rose 4.0 percent year-on-year in October compared with 4.5 percent in September, continuing a slowdown as material costs fell.

Trade balance deteriorates in the US, improves elsewhere

Trade was the big news yesterday, with both the US and China reporting record balances, but in opposite directions.

Reuters reports the US trade and other news.

The U.S. trade deficit swelled to a record $66.1 billion in September... The Commerce Department's report on the international trade balance showed September's trade gap beat the previous record of $60.4 billion set in February and outstripped economists' forecasts of $61.0 billion. The deficit widened 11.4 percent from August, the largest monthly jump since June 2004...

The politically sensitive trade deficit with China hit a record $20.1 billion in September, as imports from that country rose to a record $23.3 billion... The Commerce Department also said oil import prices averaged a record $57.32 per barrel in September, helping push the trade deficit with OPEC countries to a record $9.1 billion...

[O]verall imports jumped 2.4 percent in September to a record $171.3 billion, led by the record value of petroleum imports. U.S. exports tumbled 2.6 percent to $105.2 billion, the biggest setback since the September 2001 attacks on the United States...

But oil prices have fallen of late.

Another report showed overall U.S. import prices unexpectedly fell 0.3 percent in October, their first decline since May, as petroleum costs eased, which could relieve some pressure on the Federal Reserve to keep raising rates.

Falling energy prices perhaps explains improving consumer sentiment.

The University of Michigan said its preliminary index of November consumer sentiment rose to 79.9 from 74.2 at the end of October, according to sources who saw the subscribers-only report. This was the first rise in the index since July and also topped Wall Street economists' forecasts for a rise to 76.0...

Unemployment appears to be only a mild drag.

Data from the Labor Department showed new claims for U.S. unemployment benefits rose by 2,000 to a seasonally adjusted 326,000 in the week ended November 5 on a burst of jobless applications related to Hurricane Wilma.

On the other side of the Pacific, we get another sort of trade record.

China's trade surplus swelled to a record $12 billion...in October from $7.56 billion in September, the Beijing-based customs bureau said in a statement today. Exports rose 29.7 percent from a year earlier, led by electronics, outpacing a 23.4 percent gain in imports.

Brad Setser analyses both the US and China trade numbers.

China is not the major only economy seeing a widening trade surplus. On Wednesday, Germany had reported a wider trade surplus for September.

German exports...rose for a third month in September...gained 2.5 percent after rising a revised 2.4 percent in August... Germany's trade surplus widened to 15 billion euros ($17.6 billion) in September from 11.6 billion euros in August, the statistics office said. Adjusted for seasonal effects, the trade balance was 14.8 billion euros in September. Adjusted imports fell 1.2 percent after rising 5.8 percent in August, the report showed.

And also on Wednesday, the UK had reported a narrowing of the trade deficit for September.

Britain's...balance of trade in goods was £5.44bn in the red, down from a revised record of £5.9bn in August, according to the Office for National Statistics... The UK's surplus on trade in services rebounded to £1.6bn from £0.3bn the previous month... The improvement in the services position narrowed the balance of trade in goods and services from £5.6bn to £3.9bn in September. The total exports of goods rose two per cent to £18.1bn while total imports dropped by half a per cent to £23.5bn.

Yesterday saw France release trade and other important economic data, as reported by Bloomberg.

France's economy expanded...0.7 percent from the second quarter, when it rose 0.1 percent, the government said today in Paris...

The French inflation rate slid to 2 percent in October from 2.4 percent in September, Insee, the national statistics office, said today...

French factories, utilities and mines increased production by 0.2 percent from August, national statistics office Insee said in Paris today. The August increase was revised to a 1.2 percent gain from 0.8 percent...

France's trade deficit narrowed to 1.7 billion euros in September from 2.2 billion euros in August as exports rose 4.6 percent to a record 31.2 billion euros ($36.7 billion), the customs department said today. Imports rose 2.7 percent to 32.9 billion euros.

The economy will expand between 1.5 percent and 2 percent this year and about 2.5 percent in 2006, [Finance Minister Thierry] Breton said today, reiterating his targets.

If the trade data look a little lopsided, perhaps a recent Federal Reserve paper (via New Economist) goes some way towards explaining it.

Japanese machinery orders for September disappoint

Japan's economy is supposed to be on a sustainable recovery, but with figures like those for September machinery orders, it is sometimes a bit hard to tell.

Japanese core private-sector machinery orders plunged by a sharper-than-expected 10 percent in September, more than reversing a sharp rise in August.

The orders, viewed as a leading indicator of corporate capital spending, were still 4.8 percent higher in September compared with a year earlier.

The market had been expecting a sharp monthly drop after August orders jumped 8.2 percent from July but forecasts were mostly for a fall of 7.0 percent.

Consumer spending, liquidity and asset prices

Yesterday's fall in US consumer credit notwithstanding, it may still be too early to write off the US consumer. Reuters reports:

Investor's Business Daily and TechnoMetrica Market Intelligence said their economic optimism index rose to 48.6 from 42.0 in October, as the effect on sentiment from recent hurricanes waned... In a promising sign for the upcoming holiday shopping season, the six-month outlook measure surged 10.3 points to 40.2. The personal financial outlook climbed 4.6 points to 57.9.

And actual spending is holding up too, according to another Reuters report:

Sales in November to date were up 0.5 percent compared with the same period in October, while sales at major retailers rose by 4.2 percent on a year-over-year basis for the week ended November 5, said Redbook Research, an independent company.

And the UK consumer isn't doing too badly either, despite the retail industry's fears.

The British Retail Consortium said like-for-like sales fell 0.2 percent last month, their best year-on-year performance since March... Total sales, which include new floorspace, rose 3.7 percent. That was the sixth consecutive month of annual increases and the strongest increase since March.

This despite weak consumer confidence.

Mortgage lender Nationwide said its consumer confidence index fell to 92 points in October from a low of 94 hit the month before. That was the lowest since the survey began in May 2004. The index has lost 18 points since peaking at 110 in February... The spending sub-index improved to 112 points, with the proportion of people who think now is a good time to make a big purchase as well as those who think it is a good time to make a household purchase both inching up.

No doubt, cheap money helps fuel spending. Morgan Stanley's Joachim Fels thinks that global excess liquidity will continue to expand and sustain asset prices as well.

[D]espite the Fed’s rate hikes since June 2004, which have led to a slight decline in excess liquidity in the US and China this year (on the narrow money-to-GDP measure) global excess liquidity has become even more abundant this year. Global narrow money growth outpaced global nominal GDP growth by 1.4 percentage points (pp), broad money growth outpaced GDP by 2.7 pp, and credit growth outpaced GDP by 3.6 pp. The main reason was a significant increase in excess liquidity in the euro area on all three measures. Thus, it is fair to say that the ECB has become the main financier of global asset price inflation this year...

Global excess liquidity is alive and kicking, read: still expanding. Aggressive central bank rate hikes to mop up excessive liquidity -- and that's what would be needed to make a meaningful difference to the high levels accumulated -- are unlikely, in my view... So, excess liquidity will likely stay around, cushioning the bear market in government bonds, credit and high yield that I think has started or is about to start. And as the liquidity has to go somewhere, my guess is that the next bubble could well occur in equities, the least overvalued of all major asset classes, in my view.

Growing recession risk?

Yesterday, the Federal Reserve reported that consumer credit was unchanged in September. Total consumer credit outstanding edged down to a seasonally adjusted US$2160.1 billion from a revised US$2160.2 billion in August.

Slowing consumer credit growth is one reason that John Hussman warns of a "growing risk of recession" in his latest weekly market comment.

It is also not all clear for the Japanese economy, despite its continuing expansion. Yesterday, the Cabinet Office released its preliminary indexes on business conditions, showing that the index of coincident economic indicators stood at 55.6 percent in September, down from 80.0 in August, while the index of leading indicators fell to 50.0 percent from 100.0 percent in August.

And it is little better in Europe. Yesterday, Eurostat released a report showing that the volume of retail trade in September fell by 0.4 percent in the euro-zone and 0.1 percent in the EU25.

On the other hand, a Bloomberg measure of retail sales in the euro-zone did rise to 50.4 in October from 49.7 in September, although sales were down from a year earlier, according to a Bloomberg report. The report also mentions that industrial production in Germany increased 1.2 percent in September from the previous month but factory output in the UK shrank for a second month September, falling 0.3 percent from August.

Investors who are put off by such news and are thinking of investing in Asia ex Japan might want to read this report by Morgan Stanley's Andy Xie first.

US job growth disappoints, but other data stronger

US job growth in October was a disappointment, as Reuters reports.

Only 56,000 U.S. jobs were created in October, about half the number expected as the impact of Hurricane Katrina faded, but wages grew at the strongest pace in 2-1/2 years, a government report on Friday showed.

Though the Labor Department also revised down total job growth for the two prior months, it said the October national unemployment rate eased to 5 percent from 5.1 percent, implying the job market remained solid...

The Labor Department revised August and September data to show that 36,000 fewer jobs were created in the two months than previously thought. It said there were 148,000 new jobs in August instead of 211,000 and that 8,000 jobs were lost in September instead of 35,000...

The 0.5 percent pickup in average hourly earnings to $16.27 from $16.19 in September was the largest gain since a matching 0.5 percent in February 2003, department officials said. That caused concern among some analysts that policy-makers could see it as an inflation threat.

There was also employment data coming out of Europe yesterday.

Euro-zone seasonally-adjusted unemployment stood at 8.4% in September 2005, compared to 8.5% in August. It was 8.8% in September 2004. The EU25 unemployment rate was 8.6% in September 2005, unchanged compared to August. It was 9.0% in September 2004.

And PPI data from Europe show that it also has inflation worries.

The euro-zone industrial producer price index rose by 0.5% in September 2005 compared with the previous month. In September 2005, EU25 prices also increased by 0.5%. In August, prices gained 0.4% in the euro-zone and 0.5% in the EU25.

In September 2005 compared to September 2004, industrial producer prices increased by 4.4% in the euro-zone and by 5.3% in the EU25.

The economic strength behind these numbers are corroborated by data on German manufacturing orders, which rose 2.8 percent in September after falling 3.8 percent the previous month, and by the RBS/NTC eurozone service sector business activity index, which rose to 54.9 in October from 54.7 in September.

And the latest data from Japan shows that household spending there did not do too badly after all, rising a real 1.0 percent in September from a year earlier, the first year-on-year increase in six months.

US economy maintains momentum, ECB keeps rates unchanged

There was mostly good news for the US economy yesterday, as Reuters reports.

The Institute for Supply Management's services index rose to 60.0 last month from 53.3 in September, beating Wall Street's median forecast for a rise to 57.0...

Federal Reserve Chairman Alan Greenspan...in congressional testimony on Thursday, [said] the U.S. economy has good momentum despite some drag from the impact of the hurricanes, although he warned potential inflation remains a concern...

Non-farm productivity, or worker output per hour, grew at a 4.1 percent annual rate from July to September and second-quarter gains were revised higher to 2.1 percent, the Labor Department said in a report on Thursday...

Unit labor costs, a key profit pressure gauge, defied analyst expectations by declining at an annual rate of 0.5 percent in the third quarter...

In a separate report, the Labor Department said new claims for U.S. unemployment benefits fell for a third week...to a seasonally adjusted 323,000 in the week ended October 29 from an upwardly revised 331,000 in the prior week...

Also on Thursday, a government report showed new orders at U.S. factories fell a more-than-expected 1.7 percent in September, as orders for both durable and non-durable goods dropped.

And retail sales in the US continued to hold up well in October, with same-store sales up 4.4 percent, ahead of expectations for a 3.9 percent increase, according to Retail Metrics.

Meanwhile, in Europe, the ECB chose to keep interest rates unchanged yesterday. As The Prudent Investor notes, the ECB took no action, talks only. The talking yesterday can be found here. And for a round-up of earlier talk, the macroblog points to this Reuters article.

Fed hikes rates amid generally positive US and global economic data

As widely expected, the Federal Reserve raised interest rates yesterday by 25 basis points. Reuters has this story and more.

The Federal Reserve on Tuesday raised U.S. interest rates to the highest in four years... The central bank's policy-setting committee raised rates for the 12th time in a row by a quarter of a percentage point, to 4.00 percent, in line with market expectations.

As U.S. businesses and consumers alike grapple with exorbitant fuel prices, the Fed said high energy costs could add to inflationary pressures in the economy but added that longer-term inflation expectations were contained... The Fed said monetary policy remained accommodative, suggesting it had room to raise rates further, but kept its vow to do so at a "measured" pace...

The Institute for Supply Management said its index of nationwide manufacturing edged down to 59.1 in October, a slightly slower growth pace than September's 59.4... New orders and production continued to expand and employment grew, but the ISM's prices-paid index hit 84.0 in October, up from 78.0 in September, as energy costs rose...

In a separate report, the U.S. Census Bureau said construction spending rose 0.5 percent in September to a record high $1.120 trillion, after August's upwardly revised 0.6 percent increase...

General Motors Corp., the world's largest carmaker, reported a 22.7 percent drop in October U.S. vehicle sales compared with a year ago, for the third consecutive monthly drop, while Ford Motor Co., the No. 2 U.S. automaker, reported a 23.1 percent fall.

Also on Tuesday, independent research group Redbook Research said sales at U.S. chain stores rose as cooler temperatures and Halloween shopping lifted sales of seasonal goods. October sales to date were up 1.3 percent compared with the same September period, while sales at major retailers rose 4.5 percent on a year-over-year basis for the week ended October 29.

The Federal Reserve's tightening campaign does not appear to be threatened by developments overseas, at least for the moment.

Manufacturing was generally strong elsewhere as well. The global Purchasing Managers Index (PMI) compiled by JP Morgan climbed to 54.9 in October, its highest level since September 2004, from 54.7 in September. The euro-zone PMI climbed one point to a 13-month high of 52.7 in October. However, in China, the PMI fell to 50.1 in October, the worst reading in the China survey's 19-month history, from 50.9 in the previous month.

The data from the UK yesterday were positive. The CIPS/RBS purchasing managers' index edged up to 51.7 in October from 51.5 in September. And the Nationwide building society reported that house prices rose 1.3 percent in October, taking the annual rate of house price inflation up to 3.3 percent, confirming other indicators that the fall in prices has been arrested.

Manufacturing indicators strong amid mixed consumption data

US consumer spending and personal income resumed their climb in September after having fallen in August in the wake of hurricanes, but inflation seriously ate into gains. Reuters reports.

Consumer spending climbed 0.5 percent in September after a 0.5 percent drop in August, the Commerce Department said. But soaring fuel costs ate into the September gain, which when adjusted for inflation turned into a 0.4 percent drop.

At the same time, income shot up 1.7 percent, the biggest rise since December 2004, as insurance payouts increased at a $120 billion annual rate in the wake of recent hurricanes... The September income gain followed a downwardly revised 0.9 percent drop in August...

Stripping out hurricane-depressed rental and proprietors' income and the subsequent boost from insurance benefits, the Commerce Department said personal income would have risen 0.5 percent in September and 0.3 percent in August.

The department's inflation measure...shot up 0.9 percent in September, the biggest rise since February 1981.

But excluding food and energy, the so-called PCE price index advanced a much tamer 0.2 percent. Over the past year, this core price index has risen 2 percent, a level considered to be at the upper end of the Fed's comfort zone.

The article also reported that manufacturing in the US Midwest was strong.

Separately, the National Association of Purchasing Management-Chicago said its index of Midwest manufacturing activity rose in October to 62.9 from 60.5 in September... The report on Midwest manufacturing showed a surge in new orders and a pickup in hiring.

Earlier, another Reuters report had also indicated improved manufacturing activity for Japan.

The NTC Research/Nomura/JMMA Purchasing Managers Index...stood at a seasonally adjusted 54.7, the highest reading since August 2004 and up from 54.5 in September.

However, manufacturing activity still needs support from end demand. If US consumer demand weakens, don't expect too much from consumers elsewhere. Bloomberg reports the drop in German retail sales in September:

Retail sales in Germany... adjusted for inflation and seasonal swings, dropped 1.6 percent from August, when they rose 0.1 percent, the Federal Statistics Office in Wiesbaden said today... From a year ago, sales fell 0.7 percent after a 2.4 percent increasing in August.

...while Reuters reports that consumer confidence in the UK is at its lowest level in 2 years.

Consultancy GfK NOP said its confidence barometer unexpectedly fell to -8 this month from -5 in September. That was the third monthly decline in a row and the lowest since March 2003, the month of the U.S.-led invasion of Iraq.

...although the outlook is not totally gloomy.

BoE data on Monday showed mortgage approvals rose to 107,000 in September the highest level in more than a year, from 106,000 in August, while mortgage lending growth also picked up.

And consumer credit, or unsecured lending, also rose roughly as expected by 1.25 billion pounds after a rise of 1.32 billion in August. But that was up just 10.9 percent on the year, its weakest rate since November 1994.