Vital Signs for the Week of Dec. 27

On tap: December consumer confidence readings, November existing home sales, the Chicago purchasing managers' index, and more

By James Mehring

It has been a mediocre Christmas season for retailers so far. However, there are signs that consumers are finally out shopping in full force. In the week ended Dec. 18, seasonally adjusted same-store sales rose by 1.6%, after a 1.2% gain during the previous week.

Other recent figures show once again that consumers are driving the economy. So far in the final quarter of the year, retail sales have done well, especially when auto sales are stripped out. Overall retail sales are on track to grow at an annualized pace of 7.4% in the final quarter, after a 5.7% gain in the third quarter. The latest Commerce Dept. figures on consumer expenditures paint a similar picture. Total spending rose by a modest 0.2% in November. Take out the 2.4% drop in durable goods, which makes up just 12% of overall expenditures and was likely driven lower by slower vehicle sales, and the gain was a healthy 0.5%.

When the new year arrives, there are few reasons to expect households will hibernate. For one, more holiday related spending gets pushed out into January. The rise of gift cards has caused post holiday shopping to grow. For retailers, sales from gift cards aren't counted until items are purchased with the card. According to the National Retail Federation, holiday shoppers will spend an estimated $17.3 billion on gift cards during this holiday season, about $100 million more than in 2003.

On a more fundamental level, job and income growth should help fuel consumption throughout 2005. Tax breaks and home refinancing helped keep Americans shopping over the past couple years. But now that these temporary tailwinds have died down, positive fundamentals should take over.

The November personal income report showed a 0.3% gain. Looking just at wages and salaries, the monthly increase was 0.2%. The latest figures indicate that rising employment is lifting the country's overall level of income, even if new jobs are coming in fits and starts.

Consumer behavior early on in 2005 may also be shaped by the energy market. Right now prices remain volatile, although the general trend appears favorable. The mild weather in many parts of the country have allowed for inventory gains in crude oil, gasoline, and distillates, which includes heating oil. To be sure, a prolonged cold snap could wipe out the moderate gains. For now, however, it looks like consumers will have a happy new year.

Here's the economic calendar.

The bond market will close early on Friday, Dec. 31.


Tuesday, Dec. 28, 7:45 a.m. EST

This weekly tracking of retail sales, assembled by the International Council of Shopping Centers and UBS bank, will update buying activity for the week ending Dec. 25. In the week ended Dec. 18, seasonally adjusted sales accelerated, posting a 1.6% increase, after a weekly gain of 1.2% in the prior period following a 1.7% drop in the week ended Dec. 4.


Tuesday, Dec. 28, 8:55 a.m. EST

This weekly measure of retail activity will report on sales for the fourth fiscal week of December, ending Dec. 25. Over the first three weeks of December, ended Dec. 18, sales were off by 0.7%. Comparing the first two in December to the same period in November, sales were off 0.8%. For the full month of November, sales were down 0.5% from October.


Tuesday, Dec. 28, 10 a.m. EST

The October index of consumer confidence is expected to improve slightly. The consensus among economists surveyed by Action Economics is for an increase to 91.8. The headline reading has fallen four straight months. In November, the index stood at 90.5, from 92.9 in October, 96.7 in September, 98.7 in August, and 105.7 in July.

Despite the declines, the November report showed consumer spending this holiday season could still be better than last year. "The outlook for retailers is mildly encouraging," said Lyn Franco in the November press release.

Sentiment about the economy in general improved in November, with more respondents saying current business conditions were "good" and fewer saying conditions were "bad". Even so, the outlook for the labor market was weaker and people were less optimistic about economic conditions in the coming six months.


Wednesday, Dec. 29, 7 a.m. EST

The Mortgage Bankers Association releases its tally of mortgage applications for both home buying and refinancing for the week ending Dec. 24. In the week ended Dec. 17 the purchase index fell to 471.1, from 488.9 in the previous week, and 490.9 in the period ended Dec. 3. The latest reading of the four-week moving average reached 477.8, after moving up to 475.9 over the week ended Dec. 10.

The average rate on a conventional 30-year mortgage, according to HSH Associates, eased back to 5.8%, from 5.9% during the period ended Dec. 3.

The refi index slipped a little more. Over the week ended Dec. 10, the index came in at 1852.4, after falling to 1890.6 over the week ended Dec. 3, from 1912.3 over the week ended Nov. 26. The fall pushed the refi index four-week moving average down to 1958.65, from 2089.4 over the period ended Dec. 3.


Wednesday, Dec. 29, 10 a.m. EST

November existing home sales probably held steady. Economists surveyed by Action Economics are forecasting an annual pace of 6.75 million for November. In October, sales stood at a rate of 6.75 million, down a tick from the September rate of 6.76 million.

Currently, existing home sales are on pace to set another record pace. Through October, sales are tracking at a pace of 6.58 million, or 7.8% better than last year's 6.1 million. With mortgage rates still south of 6% despite the stirng of interest rate hikes by the Federal Reserve over the second half of the year, sales should remain strong into 2005. However additional rate hikes by the Federal Reserve should eventually cool down demand.


Thursday, Dec. 30, 8:30 a.m. EST

First-time claims for jobless benefits for the week ended Dec. 18 most likely edged down to 330,000, say economists queried by Action Economics. Jobless claims climbed back to 333,000 in the week ended Dec. 18, after falling to 316,000 in the prior period, from 361,000 Dec. 4.

The four-week moving average edged up to 340,000, from 337,800 in the week ended Dec. 11. During the week of Dec. 11, continuing jobless claims slipped to 2.72 million, from 2.73 million in the week ended Dec. 4.


Thursday, Dec. 30, 10 a.m. EST

The Chicago-area purchasing managers' index of industrial activity in the Midwest probably eased to 63.5 for December. That's according to economists queried by Action Economics. The index slipped to 65.2 in November, after jumping to 68.5 in October, from 61.9 in September.

The other indexes remained at healthy levels in November. The production index fell back to 68.4, from 79.7 in October, but remained above the September and August levels. New orders came in at 70 in November, off of the 79.4 in October, but still above any other previous reading since May. The employment index reached its highest level since August of 1988, hitting 60.8.

Mehring is an economics editor for BusinessWeek in New York

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