Experts Talk Consumer Sentiment, New Faces at the Fed

By Bloomberg BusinessWeek Staff

Bloomberg BusinessWeek compiles comments from Wall Street economists and strategists on the key economic and market topics of Mar. 12.

Neil Dutta, Bank of America Merrill Lynch

The University of Michigan's Index of Consumer Sentiment dropped to 72.5 in March, from 73.6 in February. The consensus was looking for a modest improvement to 74.0. Current conditions fell to 80.8 in March, from 81.8 in February, while expectations dropped to a four-month low of 67.2 in March, from 68.4 in February.

Consumer sentiment has basically been flat for the past three month. However, after the much better-than-expected retail sales data that was released earlier today, it is quite clear that lackluster consumer confidence does not keep consumers from actually spending. We suspect confidence will recover as we begin to see a turn in the labor market.

David Wyss, Beth Ann Bovino, Standard & Poor's

Business inventories were unchanged in January, while sales rose 0.6%. The consensus estimate [of economists] was for a 0.2% rise in inventories. The inventory/sales ratio fell to 1.25 months, down from 1.26 months and nearly back to the record low of 1.24 months set four years ago. A 0.2% rise in factory inventories offset declines of 0.1% in retail and 0.2% in wholesale inventories.

The 1.3% jump in wholesale sales was far ahead of the increases of 0.3% for manufacturers and 0.2% for retailers. Motor vehicle inventories rose 0.5%, while sales fell 1.5%, raising the inventories to a 1.93 months' supply. Non-auto retail inventories fell 0.2% and were at a 1.24 months' supply.

Overall, inventories were a bit below expectations, but this is not an important number for the market.

Adam York, Wells Fargo Securities

Sales at the nation's retailers climbed 0.3% in February, and after stripping out automotive dealers and gasoline stations, gains were even better—up 0.9%. Sales gains were broad-based, as only two categories (motor vehicles and health & personal care) showed declines. Strong gains were seen at electronics stores as well as food & beverage retailers. Our preferred measure of "core" sales, which removes gasoline, building materials, and autos, climbed 0.9%, suggesting continued gains in personal consumption in the first quarter.

Motor vehicle sales struggled for the second straight month, likely hampered by recalls. Sales declined another 2.0% after a larger-than-originally-reported decline of 1.5%.

We still expect gains of more than 2% for real [inflation adjusted] personal consumption in the first quarter. Better-than-expected retail sales coupled with higher utility outlays from the cold weather should push spending figures higher.

Kim Rupert and Michael Wallace, Action Economics

The changing [Federal Reserve] board composition has added an interesting dynamic to expectations about the trajectory of Fed policy, given the apparent dovish bent to [a possible] appointment of Federal Reserve Bank of San Francisco President Janet Yellen in the vice chair seat. At a minimum, this will boost her profile to a permanent [Federal Open Market Committee] voter a couple years earlier and will also give her views a higher profile in this key insider slot.

[O]ther names being vetted to fill two other vacancies on the [Fed's] Board of Governors include Peter Diamond, who has been on the short list already. The other name is Sarah Bloom Raskin. Currently she is Maryland's Commissioner of Financial Regulation (since 2007). She was also managing director at Promontory Financial Group, as well as banking counsel to the Senate Banking Committee, and she has worked at the New York Fed. Newswires suggest she will be nominated as soon as today. Diamond is a macroeconomist from MIT, where he both received his PhD and is currently the Paul A. Samuelson Professor of Economics (his specialty is optimal taxation). His MIT background would extend the dominance of MIT and Harvard-trained policymakers within the Administration.

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