(Headlines - scroll down for full stories)
1. Wholesale Inflation Has Biggest Decline in 13 Years
2. Retail Sales Fall: Can Black Friday Save the Sector?
3. Fed's Fisher: Shortage of Crucial Workers
4. Fund Managers Turn Pessimistic on Stocks
1. Wholesale Inflation Has Biggest Decline in 13 Years
Wholesale inflation plunged at a record rate in October thanks to falling gas
and auto prices. Core inflation, which excludes food and energy costs, recorded
its biggest fall in 13 years.
Story Continues Below
The overall Producer Price Index (PPI) tumbled 1.6 percent last month and
matched the record decline in Oct. 2001, according to the Labor Department.
That's the second month in a row of falling wholesale prices. PPI fell 1.3
percent in September.
Crude oil prices fell from a high of $78.40 in mid-July to under $60 a barrel, a
25 percent slide. The current bear market in energy is helping to contain
inflation at the wholesale level. Gas prices registered a 7.9 percent drop while
natural gas prices tumbled a record 9.3 percent.
"These are much softer numbers than we had expected in the wake of the drop in
gas prices and suggest people are being very cautious despite the rebound in
sentiment," Ian Shepherdson, chief U.S. economist at High Frequency Economics,
tells The Associated Press.
Sluggish auto sales have also pushed down prices as dealers reinstated sales
incentives for new cars and sport utility vehicles and so-called "quality
improvements" were made on passenger vehicles. SUV prices fell by a record 9.7
percent while the price of passenger cars fell 2.3 percent.
Quality improvements mean that buyers get more for their money in today's cars.
However, quality improvements don't necessarily mean the actual price tag on the
car falls, it just means that the standard features are better.
In other words, the government says that the product is cheaper today compared
to the previous model because of the added features. If you could buy the car
without those features (which you can't because they're now standard), you would
be paying less than if you had bought the car last year.
For another example, look at computers. Computers are much better quality
compared to 10 years ago. Nobody would contest that fact. But the government
arbitrarily reduces the price increases of new computers, reflecting an increase
in "quality." However, it's not like you could go back in time and buy a
computer from 10 years ago off the store shelves for that lower price. PPI acts
as if you could.
That's just one example of how the government cooks the books on inflation. FIR
subscribers can read more about the "Inflation Lie" in our latest issue.
Meanwhile, the government's inflation numbers should be good news for interest
rates. After hiking rates 17 consecutive times, the Federal Reserve has left
rates unchanged since August on the premise that the rate hikes needed to work
their way through the economy to rein in inflation without hurting economic
growth. The Fed will next meet in December.
"A lot of the inflationary pressures in the pipeline are easing off fairly
significantly coming into the fourth quarter," Andrew Pyle, head of capital
markets research at Scotia Capital Inc. in Toronto, tells Bloomberg. "It doesn't
necessarily give the all-clear on inflation, but it does take the pressure off
the Fed to tighten this year."
We'll see if the Labor Department's Consumer Price Index (CPI) report will
confirm what today's PPI showed.
Editor's Note:
2. Retail Sales Fall: Can Black Friday Save the Sector?
Retail sales fell for the second month in a row in October. Are consumers
throwing in the towel? Will they come out in full force for the biggest shopping
day of the year, Black Friday?
The Commerce Department reported that retail sales fell 0.2 percent in October,
following a 0.8 percent decline in September.
New car sales and falling gasoline prices offset each other. Falling prices at
the pump translate into fewer sales for gas stations, which drag down overall
retail sales. Car sales, on the other hand, climbed 0.6 percent for the month.
Excluding gas sales, retail sales would have risen 0.4 percent. Excluding car
sales, sales would have fallen by 0.4 percent.
Sales at department stores fell by 0.3 percent while sales at specialty clothing
stores managed a small 0.1 percent increase.
Still sales fell less than expected. Economists polled by Reuters and Bloomberg,
separately, were looking for a 0.4 percent increase on average.
"This shows consumers are hanging in there but not showing outsized exuberance,"
Anthony Chan, chief economist at JPMorgan Private Client Services, tells
Bloomberg. "It paints a picture of a moderating economy."
Bloomberg explains that the relatively healthy job market and falling energy
prices are buoying consumers despite declining home prices. Home Depot today cut
its earnings forecast, blaming the slumping housing market.
Next Friday is Judgment Day for retailers. Black Friday, the Friday after
Thanksgiving, is the day that retailers traditionally become profitable. We'll
see if consumers have been saving up for the past two months or if they've
thrown in the towel.
Editor's Note:
3. Fed's Fisher: Shortage of Crucial Workers
Federal Reserve Bank of Dallas President Richard Fisher said Monday that
employers were witnessing a clear shortage of certain types of workers,
including welders, plumbers, and truck drivers.
"Throughout this nation and especially in the state of Texas . . . [companies
are] suffering from a shortage of skilled and semi-skilled labor," he told the
Texas Lyceum Public Conference.
Fisher, not a voting member of the Fed's interest rate-setting committee this
year, said hourly wages for some types of workers in the Texas construction
sector had jumped sharply and employers were now having to pay bonuses just to
get people to show up for work.
The U.S. unemployment rate unexpectedly dropped to 4.4 percent in October from
4.6 percent the previous month.
This has fueled concerns of wage inflation, and some economists say it will
encourage the Fed to hold interest rates steady at 5.25 percent until well into
next year.
Fisher's speech was aimed mainly at the outlook for the Texas economy and he
said it had shared some of the downturn in the housing market experienced
elsewhere in the country, although not nearly to the extent of the East and West
coasts.
© 2006 Reuters.
Editor's Note:
4. Fund Managers Turn Pessimistic on Stocks
When it comes to stocks, is your fund manager bullish or bearish. A recent
survey by Merrill Lynch shows more fund managers think equities are overvalued
than undervalued for the first time in more than two years.
According to the survey of 216 fund managers who manage about $611 billion in
assets, 19 percent say stocks are overvalued while 18 percent say stocks are
undervalued. The majority, 62 percent, say stocks are fairly valued.
"Fund managers remain essentially cautious about the prospects for global growth
and corporate earnings," said David Bowers, a consultant to Merrill Lynch on the
surveys.
"While not quite as negative about the growth outlook as they were back in
August, investors continue to struggle to see how corporate profits can surprise
positively over the coming year," he added.
The Dow Jones industrial average reached a record high of 12,000 in October.
Economists have said the index of 30 stocks is due for a sharp correction from
here.
Editor's Note:
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