The Producer Price Index for Finished Goods rose 3.2 percent in November, seasonally adjusted, the Bureau of Labor Statistics of the U.S. Department of Labor reported today. This gain followed increases of 0.1 percent in October and 1.1 percent in September. At the earlier stages of processing, prices for intermediate goods moved up 3.7 percent after rising 0.1 percent in the prior month, while the crude goods index increased 8.7 percent following a 2.4-percent advance in October.
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Before seasonal adjustment, the Producer Price Index for Finished Goods advanced 1.6 percent in November to 171.3 (1982 = 100). From November 2006 to November 2007, prices for finished goods rose 7.2 percent. Over the same period, the finished energy goods index climbed 23.6 percent, prices for finished consumer foods increased 7.3 percent, and the index for finished goods other than foods and energy moved up 2.0 percent. For the 12 months ended November 2007, prices for intermediate goods increased 8.1 percent, while the crude goods index jumped 22.4 percent.
The Consumer Price Index for All Urban Consumers (CPI-U) increased 0.6 percent in November before seasonal adjustment, the Bureau of Labor Statistics of the U.S. Department of Labor reported today. The November level of 210.177 (1982-84=100) was 4.3 percent higher than in November 2006.
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During the first eleven months of 2007, the CPI-U rose at a 4.2 percent seasonally adjusted annual rate (SAAR). This compares with an increase of 2.5 percent for all of 2006. The index for energy, which increased 2.9 percent in 2006, advanced at an 18.1 percent SAAR in the first 11 months of 2007. Petroleum-based energy costs increased at a 30.8 percent annual rate and charges for energy services rose at a 3.2 percent annual rate. The food index has increased at a 5.3 percent rate thus far in 2007, following a 2.1 percent rise for all of 2006. Excluding food and energy, the CPI-U advanced at a 2.4 percent SAAR in the first 11 months of 2007 after increasing 2.6 percent in 2006.
Retail sales increased by 1.2%, the Commerce Department said Thursday. Sales went up an unrevised 0.2% in October.
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Excluding gas and auto sectors, demand at other retailers last month increased by a robust 1.1%. Sales climbed by 2.5% at electronic stores; 0.6% at health and personal care stores, 1.0% at food and beverage stores; 1.2% at building material and garden supplies dealers; 2.6% at clothing stores; 0.3% at eating and drinking places; 1.9% at mail order and Internet retailers; 1.0% at furniture store sales; 2.2% at sporting goods, hobby and book stores; and 0.9% at general merchandise stores.
U.S. retail sales dropped for the second straight week as consumers postponed holiday gift purchases during what may be the worst holiday shopping season in five years.
Sales fell 2.7 percent in the seven days through Dec. 8, following a 4.4 percent decline a week earlier, Chicago-based research firm ShopperTrak RCT Corp. said yesterday. About 12 percent fewer shoppers visited stores last week compared with the same period last year, ShopperTrak said.
Consumers are completing their holiday shopping later than usual, and they're trimming purchases as they pay for $3-a- gallon gasoline and higher food costs. The National Retail Federation in Washington forecast a 4 percent increase in holiday sales this year, the smallest gain since 2002.
``High gas prices and oil costs are definitely taking money out of people's wallets,'' Michael McNamara, vice president of research and analysis at Mastercard Advisors in Purchase, New York, said yesterday.
The Producer Price Index for Finished Goods rose 3.2 percent in November, seasonally adjusted, the Bureau of Labor Statistics of the U.S. Department of Labor reported today. This gain followed increases of 0.1 percent in October and 1.1 percent in September. At the earlier stages of processing, prices for intermediate goods moved up 3.7 percent after rising 0.1 percent in the prior month, while the crude goods index increased 8.7 percent following a 2.4-percent advance in October. (See table A.)
The deficit has widened for two consecutive months after narrowing in the previous three. But the monthly gap remains well below the $67.6 billion deficit recorded in August 2006. The falling dollar has been a boon for exporters, making their products more affordable in global markets.
Export growth in the late summer helped offset the housing sector's drag on gross domestic product in the third quarter. Exports contributed 1.4 percentage points to GDP's annualized growth rate of 4.9%.
Some economists say exports will keep the economy from contracting in the current quarter. Morgan Stanley economists said in a note to clients that their "meager" forecast for growth in gross domestic product, now at 0.2%, would be negative if not for export growth. "The domestic economy already appears to be in mild recession in the fourth quarter," they wrote.
In the biggest coordinated show of international financial force since Sept. 11, 2001, the Federal Reserve yesterday joined four other central banks in a plan aimed at coaxing banks to lend more readily at a time when fear has seized up world credit markets.
Just a day after it cut its key rate for the third time this year, the Fed introduced a new tactic, saying it will extend up to $40 billion in special loans in the next eight days to banks. To stoke banks' appetite to borrow and lend, the loans will carry less interest than Fed loans to banks usually do, and still can be backed by a wide range of collateral -- including the high-risk home mortgages at the heart of the current financial crisis.
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The central bank has cut interest rates three times since August by a total of a full percentage point, with the most recent quarter-point cut coming just on Tuesday. But bankers and investors nevertheless have become increasingly jittery, and more reluctant to lend to businesses, consumers and even to each other. Meanwhile, signs continue to spread that the American housing-market meltdown, the related turmoil in money markets and high energy prices are pressing on the U.S. economy. The Fed fears that reluctance to lend could push an already stalled economy into recession.
The Fed has faced two intertwined challenges since the financial crisis hit in August. One has been to cut rates enough to cushion the economy from a collapsing housing bubble, without igniting inflation. The other has been to overcome the credit crunch that stems from the housing woes -- and has muffled the impact of the rate cuts.
So far, the medicine isn't working. The rates banks offer to consumers and each other have stayed stubbornly high. The Fed tried to encourage financial institutions to borrow from its "discount window" but there were few takers. Separately, the Bush administration has prodded big banks to create a new entity to buy some mortgage-linked securities that aren't selling, and has pressed for mortgage-servicers to freeze interest payments on perhaps hundreds of thousands of homeowners whose mortgage payments are set to rise.
Some of the nation's largest banks on Wednesday warned of higher losses in the fourth quarter as the turmoil in the credit and mortgage markets continues to weigh on the financials sector.
Bank of America Chief Executive Ken Lewis said the firm would have to write down a larger amount of its investment in some debt securities than previously planned.
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Also Wednesday, Wachovia Corp., said it expects to report fourth-quarter earnings is the range of 60 cents to 75 cents a share, and adjusted earnings between $1 and $1.15 a share. Analysts polled by Thomson Financial are looking for profit of $1.39 a share, on average.
In a separate regulatory filing Wednesday, PNC Financial Services Group Inc. The PNC Financial Services Group, Inc said it expects to report fourth-quarter earnings in the range of 60 cents to 75 cents a share, and adjusted earnings between $1 and $1.15 a share. Analysts polled by Thomson Financial are looking for profit of $1.39 a share, on average.
The biggest act of international economic cooperation since the Sept. 11 terrorist attacks is being put in place after demand for cash caused borrowing costs to rise. Banks and securities firms around the world have written down about $76 billion of assets this year after the market for mortgage-backed securities disintegrated.
The market for U.S. asset-backed commercial paper backed by assets such as mortgages and credit-card loans has shrunk for 17 straight weeks to $801 billion, falling 33 percent from its peak on Aug. 8, as structured investment vehicles continued winding down, according to data compiled by Bloomberg.
The dollar is still in a downtrend, oil is still high and the Federal Reserve is looking like they are behind the curve. Housing is still a huge problem, corporate earnings are not good, and confidence is low
Readings on core inflation have improved modestly this year, but elevated energy and commodity prices, among other factors, may put upward pressure on inflation. In this context, the Committee judges that some inflation risks remain, and it will continue to monitor inflation developments carefully.
For example, there continues to be a strong demand to hold U.S. Treasury securities—which are the safest and most liquid in the world—leading to Treasury yields that are much lower than they were before the shock hit in mid-July. Of course, one reason for the decline in Treasury yields is that the Fed has cut the federal funds rate and the market expects substantial additional cuts in the future, reflecting the view that policy will ease further to offset the contractionary effects on economic activity of the financial turmoil. But another important reason is that there has been a worldwide “flight to safety.” Stated differently, the spreads of most risky assets above Treasuries have risen.
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Likewise, the cost of insuring investors against default on securities they hold, through derivatives known as credit default swaps, has jumped again in recent weeks and is far higher than normal.
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The mortgage market has been the epicenter of the financial shock, and, not surprisingly, greater aversion to risk has been particularly apparent there, with spreads above Treasuries increasing for mortgages of all types.
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Moreover, many markets for securitized assets, especially private-label mortgage-backed securities, continue to experience outright illiquidity; in other words, the markets are not functioning efficiently, or may not be functioning much at all. This illiquidity remains an enormous problem not only for companies that specialize in originating mortgages and then bundling them to sell as securities, but also for financial institutions holding such securities and for sponsors, including banks, of structured investment vehicles—these are entities that relied heavily on asset-backed commercial paper to fund portfolios of securitized assets.
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Depository institutions are increasingly facing challenges.
At the same time, the term interbank funding markets have remained unsettled. This is evident in the much wider spread between term funding rates--like libor--and the expected path of the federal funds rate. This is not solely a dollar-funding phenomenon--it is being experienced in euro and sterling markets to different degrees. Many loans are priced off of these term funding rates, and the wider spreads are one development we have factored into our easing actions. Moreover, the behavior of these rates is symptomatic of caution among key marketmakers about taking and funding positions, and this is probably impeding the reestablishment of broader market trading liquidity. Conditions in term markets have deteriorated some in recent weeks. The deterioration partly reflects portfolio adjustments for the publication of year-end balance sheets. Our announcement on Monday of term open market operations was designed to alleviate some of the concerns about year-end pressures.
With respect to household spending, the data received over the past month have been on the soft side. The Committee will have considerable additional information on consumer purchases and sentiment to digest before its next meeting. I expect household income and spending to continue to grow, but the combination of higher gas prices, the weak housing market, tighter credit conditions, and declines in stock prices seem likely to create some headwinds for the consumer in the months ahead.
Core inflation--that is, inflation excluding the relatively more volatile prices of food and energy--has remained moderate. However, the price of crude oil has continued its rise over the past month, a rise that will be reflected in gasoline and heating oil prices and, of course, in the overall inflation rate in the near term. Moreover, increases in food prices and in the prices of some imported goods have the potential to put additional pressures on inflation and inflation expectations. The effectiveness of monetary policy depends critically on maintaining the public’s confidence that inflation will be well controlled. We are accordingly monitoring inflation developments closely.
The incoming data on economic activity and prices will help to shape the Committee’s outlook for the economy; however, the outlook has also been importantly affected over the past month by renewed turbulence in financial markets, which has partially reversed the improvement that occurred in September and October. Investors have focused on continued credit losses and write-downs across a number of financial institutions, prompted in many cases by credit-rating agencies’ downgrades of securities backed by residential mortgages. The fresh wave of investor concern has contributed in recent weeks to a decline in equity values, a widening of risk spreads for many credit products (not only those related to housing), and increased short-term funding pressures. These developments have resulted in a further tightening in financial conditions, which has the potential to impose additional restraint on activity in housing markets and in other credit-sensitive sectors. Needless to say, the Federal Reserve is following the evolution of financial conditions carefully, with particular attention to the question of how strains in financial markets might affect the broader economy.
