Tuesday 1 November 2005

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.

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