Experts Talk Consumer Confidence, Retail Sales, Defaults

Bloomberg BusinessWeek compiles comments from Wall Street economists and strategists on the key economic and market topics of Dec. 11. Staff economists, Action Economics

The University of Michigan consumer sentiment index jumped to 73.4 in the December preliminary reading (median 68.5) from 67.4 in November, approaching the near two-year high reached in September. The future expectations component rose to 69.7 after dropping to 66.5 in November. And the current conditions component surged to 79.1 after dropping to 68.8 in November.

U.S. business inventories rose 0.2% in October (vs. economists' median forecast of –0.2%) following a downwardly revised 0.5% drop in September, registering the first rise since August 2008. Business sales accelerated to +1.1%, vs. an upwardly revised +0.2% in September. And the inventory-to-sales ratio dipped to 1.30 from 1.31, well below 1.46 in December and January that marked the highest level of the cycle.

The data should continue to underpin Treasury yields and stocks following the stronger-than-expected retail sales data this morning.

Anna Piretti, BNP Paribas

November U.S. retail sales surged 1.3%. Excluding autos, retail sales rose 1.2%. The retail sales data is significantly stronger than expected, as the market consensus was for a rise of 0.6% in overall retail sales, with estimates in a range of from –0.8% to 1.3%. Ex-autos, the consensus call was +0.4%, with a range of –0.5% to +1.2%.

The rise in overall retail sales reflected healthy motor vehicle sales, rising gasoline prices, a solid rise in general merchandise sales, and a sharp rise in building materials sales. Department store sales rose 0.8% and nonstore retail sales rose 1.2%. Apparel sales were soft, but that could have reflected the relatively warm weather in November. The data are very encouraging.

Ward McCarthy, Jefferies & Co.

Import prices surprised markets to the upside in November, rising by 1.7% month-over-month vs. expectations for a 1.2% gain. Strength was driven by energy-related costs, as prices for imported petroleum rose 6.2% from the prior month, while prices for natural gas soared by 30.0%, building on a strong 17.1% gain in October.

Excluding fuels, import prices increased by a more moderate 0.4% month-over-month [pace] in November, following similar gains over the previous three months. As observed in recent months, raw material prices remain on a moderate upward trend, but limited firms' pricing power has so far prevented these increases from filtering to final goods prices.

Indeed, food import prices increased for the fourth consecutive month in November, gaining 0.5% month-over-month, in line with a rebound in food commodity prices recorded worldwide. In addition, unfinished metal prices rose by 2.7% month-over-month, marking the seventh consecutive monthly gain.

In contrast, import prices of capital goods rose by a moderate 0.2% in November [from the previous month], following several months of largely flat readings, while prices of consumer goods ex-autos declined by 0.1% month-over-month and were down by 0.4% compared to a year ago.

Given that oil prices have declined by around 9% since the beginning of December, the strength of headline import prices recorded in November is likely to moderate going forward. In addition, generally subdued readings for finished goods prices support our forecast for weak core CPI inflation.

Diane Vazza, Standard & Poor's Ratings Services

One U.S.-based corporate issuer defaulted this week, bringing the 2009 year-to-date tally of global corporate defaults to 260 issuers—the highest default count since our series began in 1981, including the then-record high of 229 issuers in the last recession of 2001. By comparison, this tally is more than twice the entire 2008 global corporate default tally.

By region, global corporate default tallies stand at 188 issuers in the U.S., 20 in Europe, 36 in the emerging markets, and 16 in the other developed region. Please note that these figures were revised to include issuers that have defaulted recently but were no longer rated by Standard & Poor's at the time of default.

This week's default was due to a Chapter 11 filing. Bankruptcy-related filings account for 70 defaults so far this year, trailing distressed exchanges and missed interest and/or principal payments as leading reasons for default at 101 issuers and 89 issuers, respectively.

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