U.S. Economy: Sales, Production Gains Point to PickupTimothy R. Homan and Bob Willis
Retail sales and industrial production both rose in December, indicating that the U.S. economic recovery is picking up as the new year begins.
Purchases climbed 0.6 percent, capping the biggest annual increase in more than a decade, Commerce Department figures showed today in Washington. Output at factories, mines and utilities increased 0.8 percent, the most in five months, according to data from the Federal Reserve.
Americans this year are forecast to boost the spending that accounts for 70 percent of the economy as tax cuts put more money in their pockets, increasing demand for Ford Motor Co. cars and Apple Inc. iPads. At the same time, an unexpected drop in consumer confidence indicates that rising gasoline prices and unemployment stuck above 9 percent pose a risk for sales.
“The expansion should no longer be described as fragile,” said Dean Maki, chief U.S. economist at Barclays Capital in New York, who today raised his forecast for fourth-quarter growth to 3.5 percent from 3 percent. The pickup in sales “is an important signal that consumers are more comfortable spending than they have been.”
Stocks rose, sending the Standard & Poor’s 500 Index to its longest weekly rally since 2007 as JPMorgan Chase & Co. reported record profits. The S&P 500 increased 0.7 percent to 1,293.24 at the 4 p.m. close in New York. Treasury securities fell, pushing up the yield on the benchmark 10-year note to 3.34 percent from 3.30 percent late yesterday.
The Thomson Reuters/University of Michigan preliminary index of consumer sentiment for this month dropped to 72.7, the lowest since November, from 74.5 in December. Economists surveyed by Bloomberg News projected a gain to 75.5, according to the median forecast.
Americans anticipated stagnant incomes this year along with rising inflation, a product of the highest gasoline prices at the pump since October 2008.
The cost of living climbed 0.5 percent in December, led by higher fuel and food prices, figures from the Labor Department also showed today. For all of 2010 the consumer-price index rose 1.5 percent compared with a 2.7 percent increase the prior year.
The so-called core rate of inflation, which excludes volatile food and fuel costs, rose 0.1 percent for a second month. That held last year’s increase to 0.8 percent, the smallest annual gain since records began in 1958.
For all of 2010, retail sales increased 6.7 percent, the biggest one-year advance since an 8.2 percent jump in 1999.
Less Than Forecast
Last month’s gain in purchases fell short of the 0.8 percent median forecast of 83 economists surveyed by Bloomberg. Forecasts ranged from a decline of 0.1 percent to a gain of 1.3 percent.
Eight of 13 major retail categories showed increases last month, led by a 2.6 percent jump at non-store retailers, which include Internet vendors. The increase was the biggest in more than two years. Demand at auto dealers climbed 1.1 percent.
Apple sold 7.5 million iPads as of the end of September, making it the best-selling tablet, and the device has generated almost $5 billion in revenue. The Cupertino, California-based company will provide an update on sales when it reports fiscal first-quarter earnings next week.
President Barack Obama signed into law an $858 billion bill on Dec. 17 extending Bush-era tax cuts for two years. The measure also renewed emergency jobless benefits for the long-term unemployed and cut 2011 payroll taxes by two percentage points. Economists such as John Herrmann at State Street Global Markets LLC in Boston said the tax package will boost consumer spending in early 2011.
Household spending this year will climb 3 percent, the most since 2005, according to the median forecast of economists surveyed this month. That’s up from a 2.6 percent median estimate in the December, before the legislation was signed.
Auto sales in December reached a 12.53 million annual pace, the highest since the government’s so-called cash-for-clunkers incentive program in August 2009, according to industry data.
Ford said Jan. 10 it plans to hire more than 7,000 workers in the next two years, including engineers with expertise in battery-powered cars. The Dearborn, Michigan-based company will hire 4,000 factory workers and 750 engineers this year and add 2,500 hourly workers next year, Mark Truby, a company spokesman, said in an interview in Detroit.
The University of Michigan’s confidence survey’s gauge of current conditions, which reflects Americans’ perceptions of their financial situation and whether it is a good time to buy big-ticket items like cars, decreased to a three-month low of 79.8 this month from 85.3 in December.
The index of consumer expectations for six months from now, which more closely projects the direction of consumer spending, increased to 68.2, the highest since June 2010.
“Rising gasoline prices are definitely hurting people’s wallets,” said Jennifer Lee, a senior economist at BMO Capital Markets in Toronto. “The more important thing is to focus on the expectations index, which shows consumers are feeling a little better about their finances in coming months and that will guide spending patterns up.”
Also today, inventories at U.S. companies rose 0.2 percent in November, the smallest gain in six months as companies struggled to keep up with increasing sales, according to another report from the Commerce Department. Companies may need to keep placing orders or pick up production to meet demand and restock shelves in coming months, sustaining the rebound in manufacturing into 2011.
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