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1. Fed's Moskow: Inflation Is Too High
2. Are Consumers Taking a Breather?
3. Consumer Confidence Recovers
4. Gold Stages a Comeback
1. Fed's Moskow: Inflation Is Too High
Chicago Federal Reserve President Michael Moskow echoed the sentiments of
several other Fed officials when he said that the risk of inflation outweighs
the risk of an economic slowdown right now. The Fed president didn't rule out
the need for additional interest rate increases.
"Some additional firming of policy may yet be necessary to bring inflation back
to a range consistent with price stability in a reasonable period of time,"
Moskow said in a speech to a real estate group from Roosevelt University. .
Story Continues Below
"My current assessment is that the risk of inflation remaining too high is
greater than the risk of growth being too low," he added.
In the past month, several other Fed officials have come out to warn the market
that rate cuts aren't inevitable. Fed Board Vice Chairman Donald Kohn, bank
Presidents Jeffrey Lacker, Richard Fisher, and Charles Plosser have made
comments to that effect. Bank Presidents William Poole and Janet Yellen have
indicated that the Fed's present course of stable interest rates is the right
one.
"By my standards, inflation has been too high," said Moskow.
According to Bloomberg, the core personal consumption expenditures price index,
which excludes food and energy prices, has been above the Fed's stated comfort
level of 2 percent for more than two years.
"Looking ahead, it's likely that core inflation will come down somewhat over
time," said Moskow. "Still, there is a risk that core inflation could run above
2 percent for some time."
As far as the housing market goes, Moskow commented, "There are factors
restraining economic activity. The most notable one is weakness in the housing
sector, and there also is uncertainty about how important this factor will be
for overall growth."
Moskow agreed with Fed Chairman Ben Bernanke's assessment of the impact housing
will have on the economy, saying there are "important fundamentals" that should
help the housing market rebound, such as demographics, income levels, and low
interest rates.
"Outside of housing, there do not appear to be any imbalances that would
foreshadow large adjustments in spending in other sectors," he said.
Moskow's speech wasn't all bullish for interest rates, he also admitted that the
economy would likely slow in the coming months. "Over the next year or so I
expect the economy to expand, on average, somewhat below its long-run
sustainable growth rate - which many economists estimate as roughly 3 percent
per year."
Editor's Note:
2. Are Consumers Taking a Breather?
Consumers headed back to clothing, furniture and department stores in September,
but not in great enough numbers to offset a record decline in gasoline sales.
Overall, retail sales dipped by a bigger-than-expected 0.4 percent. But they
actually posted a 0.6 percent advance when the big drop in prices at gasoline
stations was excluded, the Commerce Department reported Friday.
And a second report from the University of Michigan showed that the big declines
in gasoline costs helped consumer confidence to rise sharply in October, posting
a preliminary reading for the month of 92.3, up from 85.4 in September. (See
below article)
Analysts said the rise in confidence should translate into solid consumer
spending during the upcoming holiday sales season and help keep the nation from
stumbling into a recession.
The September retail sales report showed that sales at gas stations dropped by a
record 9.3 percent. Prices at the pump plummeted 13 percent during the month.
In other economic news, inventories held by businesses on shelves and backlots
rose by 0.6 percent in August as total sales by manufacturers, wholesalers and
retailers rose by 0.8 percent.
Economists are looking for inventories to grow at a more modest rate in the last
half of the year as the auto industry continues to work down a backlog of unsold
cars. That slowdown in inventory building is expected to trim overall economic
growth by about 0.6 percentage point in the July-September quarter.
Consumer spending slowed sharply earlier this year as Americans were battered by
gasoline prices topping $3 per gallon, high interest rates and a cooling housing
market. This slowdown trimmed overall economic growth to a rate of just 2.6
percent in the spring.
Many economists had worried that if the housing slowdown became severe enough it
could push the country into a full-blown recession. However, those fears have
eased in recent weeks as gasoline pump prices have fallen significantly, putting
consumers in a mood to spend on other items.
Still, economists believe that the economy, weighed down by continued declines
in housing and a record trade deficit, will grow at a sluggish rate of 2 percent
to 2.5 percent in the last half of this year.
For September, sales jumped 1.1 percent at department stores and were up an even
larger 3 percent at specialty clothing stores, the biggest increase in this
category in 11 months.
The big gains in clothing sales last month have given retailers hope that they
will be able to close out the year with a good holiday shopping season.
Auto sales were flat in September following a 0.4 percent drop in August. The
nation's automakers have struggled this year with a glut of sport utility
vehicles and other gas-guzzling cars.
Excluding auto sales, retail sales were down 0.5 percent, reflecting the big
drop in the amount drivers were spending at service stations.
Sales increased by moderate amounts at furniture stores, hardware stores,
sporting goods stores and restaurants and bars. Sales fell at grocery stores.
The various changes left retail sales at a seasonally adjusted $366.2 billion in
September, down from $367.7 billion in August.
© 2006 Associated Press.
Editor's Note:
3. Consumer Confidence Recovers
U.S. consumer sentiment rose more than expected in October, a preliminary report
showed Friday, as consumers' view of both current and future conditions
improved.
The University of Michigan's preliminary October reading on its consumer
sentiment index was 92.3, up from September's final 85.4, said sources who saw
the subscription-only report.
The median forecast of Wall Street economists polled by Reuters was for the
index to read 86.5.
The survey's index of current conditions jumped to 106.1 on a preliminary basis
in October from 96.6 in September, while consumer expectations climbed to 83.4
from 78.2.
"Happy days are here again," said Patrick Fearon, senior economist at A.G.
Edwards and Sons in St. Louis, Missouri. "It was a stellar number compared to
what we've been seeing for the past many months."
Fearon said consumers' mood had improved due to falling fuel prices.
"People felt better when they went to the gasoline pump and that made them more
willing to spend on other things," he said. "We saw that in the government's
September retail sales report which showed a decline in receipts at gasoline
stations while sales in several other categories of retail trade rebounded."
Total U.S. retail sales fell 0.4 percent in September on a record drop in
gasoline sales, but rose when those sales were stripped out, the Commerce
Department reported Friday.
The big drop in gasoline prices in September was reflected in a 9.3 percent
tumble in sales at gas stations, the largest decline on record, the government
said. Gas prices fell from about $3.00 a gallon in early August to $2.50 early
September, economists from FTN Financial said this week.
Excluding gasoline sales, retail sales rose 0.6 percent.
Consumer spending accounts for about two-thirds of U.S. economic activity, but
in recent years confidence measures have been a weak guide to actual spending.
Consumers' expectations for increased inflation were mixed in October, the
report said, according to the sources.
The University of Michigan's preliminary October reading on one-year U.S.
inflation expectations was 2.9 percent, down from 3.1 percent in September.
Median expectations for inflation over a five-year horizon edged higher to 3.1
percent in October from 3.0 percent in September.
© 2006 Reuters.
Editor's Note:
4. Gold Stages a Comeback
Gold rose nearly two percent on Friday tracking firmer oil, but pared gains in
late trade on a stronger dollar that prompted some investors to take profits.
The market has been choppy and moved by an average $13 a day in a week, tracking
moves in the currency and energy markets.
James Steel, metals analyst at HSBC Bank, said investors got a lead from the
rally in oil, while good physical demand in India, the world's top gold
consumer, also supported the market.
"The oil rally has given everybody another reason to buy gold. I am near-term
bullish. I don't think gold (will go) over $600 an ounce but I think it will be
strong," he said.
Spot gold hit a high of $589.00 an ounce, the highest since Oct 3, before
dipping to $586.20/587.20 by 1451 GMT, against $578.10/579.10 late in New York
on Thursday.
Oil extended its rebound, from a 2006 low, after oilfield shutdowns in Norway
and a surprise drop in fuel inventories in top consumer the United States.
The dollar rose after a preliminary reading of a key consumer sentiment survey
for October came in higher than expected.
Gold is seen as a hedge against inflation and often moves along with oil prices,
but the metal generally has an inverse relationship with the dollar.
"The downside in both oil and the dollar is now very limited and we strongly
believe that both are set to reverse direction in the month ahead, thus
providing the gold market with a clear element of direction over the medium
term," Barclays Capital said in a report.
Bullish Long Term
Analysts remained bullish about gold's outlook in the long term. Gold producers
are also looking at ways to strengthen their positions.
Barrick Gold Corp. again extended its $1.3 billion hostile offer to acquire
NovaGold Resources Inc., saying the deal was more attractive than when it was
first announced.
Barrick, the world's largest gold producer, made an unsolicited $1.29 billion
offer for NovaGold in July, as it sought to consolidate development projects in
Alaska and British Columbia. NovaGold in August urged investors to reject the
offer, saying it undervalued the company.
In other precious metals, platinum traded near a six-month low despite buying
interest from jewelers and auto makers. It was quoted at $1,072/1,077 an ounce,
against $1,069/1,074.
Persistent selling in Japanese futures dragged down the spot price to $1,060 on
Wednesday, its lowest since early April.
"Japanese investors have been selling platinum in TOCOM because of weakness in
the gold price. They don't seem to understand there's actually good demand from
jewelers and auto makers," said a dealer in Tokyo.
"But I am sure platinum will recover even faster than gold because we have this
autumn demand ahead of Christmas. I would say $1,060 will be the bottom price,"
he said.
Palladium rose to $311/314 an ounce from $303/308, while silver was little
changed at $11.33/11.40.
© 2006 Reuters.
Editor's Note:
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