Saturday, 23 December 2006

More growth concerns despite robust consumer spending

Reuters reports the economic data yesterday from the US.

The University of Michigan said the final December reading of its consumer sentiment index slipped to 91.7 from 92.1 in November.

However, the index was slightly above economists' median forecast of a 90.2 reading, causing government bond prices to deepen losses...

The University of Michigan's price expectations over a one-year period, an important guidepost for interest rate policy, dipped to 2.9 percent, its lowest since February 2005, from 3.0 percent in November.

The Commerce Department reported its core November personal spending price index, which excludes volatile food and energy costs, was unchanged from October -- the first time since October 2002...

The Commerce Department report also showed that personal income rose 0.3 percent in November after a 0.3 percent gain in October, while spending climbed 0.5 percent after increasing 0.3 percent a month earlier...

Separately, new orders for U.S.-made durable goods rose a larger-than-expected 1.9 percent in November on aircraft sales, but fell when airplane orders were stripped from the data, a second Commerce Department report showed on Friday.

Excluding volatile transportation orders, which are heavily skewed by aircraft, durable goods orders fell surprisingly by 1.1 percent. It was the second consecutive monthly drop in durables orders excluding transportation and the fourth decline in the last five months...

Excluding defense, orders rose 0.6 percent, slightly weaker than analysts' expectations of a 0.7 percent gain.

Nondefense capital goods orders excluding aircraft, a proxy for business spending, dipped unexpectedly by 1.4 percent. Analysts had expected a rise of 0.9 percent.

MarketWatch reports positive reactions from economists on the consumer spending data.

With revisions, "the report turned out to be stronger than expected," wrote David Greenlaw, an economist for Morgan Stanley, in an email. Greenlaw now sees consumption rising at a 4% annual pace in the fourth quarter. "In our view, the drop in gasoline prices has been the main catalyst for the rebound in consumer demand."

Fourth-quarter growth "looks to be far from the disaster that many were forecasting not very long ago," MFR chief economist Joshua Shapiro wrote to clients.

But another MarketWatch report says the reaction to the durable goods data was not so positive.

"Business investment spending, which had been supporting much of manufacturing's expansion, is slowing," wrote Marisa DiNatale, an economist for Moody's Economy.com, in a note to clients...

"The ISM signaled weakness, and here it is," wrote Ian Shepherdson, chief U.S. economist for High Frequency Economics.

The data from Europe yesterday painted a somewhat similar picture on the economy.

Bloomberg reports that French business confidence unexpectedly fell in December even as household spending on manufactured goods rose a greater-than-expected 0.9 percent in November, while business confidence in Italy was unchanged in December.

AFX/Forbes reports that new industrial orders in the euro zone fell 0.6 pct in October from September.

Meanwhile, Germany's inflation rate held steady at 1.5 percent in December, unchanged from November, reports Bloomberg.

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