Inflation in check but shopping slips

The week’s economic reports included generally positive readings on inflation, with only slight increases in consumer and wholesale prices. October retail sales, meanwhile, were anemic, a discouraging sign for merchants as the all-important holiday shopping season starts. For the week, the S&P 500 Index edged up 0.3% to 1,459 (for a year-to-date total return of 4.53%). The yield of the 10-year U.S. Treasury note fell 8 basis points to 4.15%.

 

Consumer price growth remained moderate

The Consumer Price Index (CPI), the most closely watched inflation barometer, edged up 0.3% in October, as higher energy prices were offset by stable housing and clothing prices. The rise matched September’s increase. The core CPI, which excludes the volatile food and energy sectors, rose 0.2%, the same level of increase seen in the previous four months. Through the first ten months of 2007, core CPI rose at an annualized rate of 2.3% compared with 2.6% in 2006.

 

Wholesale prices inched higher

The Producer Price Index (PPI) for finished goods, a gauge of wholesale prices, nudged up 0.1% in October, following a 1.1% advance in September. The increase was restrained by moderating energy prices. Excluding food and energy costs, the core PPI index was unchanged.  

 

Retail sales tepid heading into holiday season

Retail sales growth in October slowed to 0.2%, after increasing an upwardly revised 0.7% in September. Gas stations had the strongest growth, with sales up 0.8%. Excluding the auto and gas sectors, sales edged up 0.1%. Among the sectors experiencing weakness were mail-order and Internet retailers, which saw sales decline 1.0% from September. October retail sales are closely watched because they’re seen as an indicator of sales during the crucial holiday shopping season.

 

Business inventories rose, matching expectations

Total business inventories increased 0.4% in September, up from a 0.3% rise in August. Inventories at manufacturers climbed 0.6% after falling –0.1% in August. Retail inventories were up 0.1%, while wholesale inventories gained 0.8%.

 

Industrial production declined

Industrial production unexpectedly slipped –0.5% in October, following an upwardly revised 0.2% gain in September. Manufacturing sector output fell –0.4%. Capacity utilization in the industrial sector dropped to 81.7% from 82.2% in September. The October capacity utilization rate was equal to the level seen a year ago and above the historical average of 81.0%

 

The economic week ahead

The release on Wednesday of The Conference Board’s index of leading economic indicators will provide a reading on the outlook for the U.S. economy. Also due are a report on new residential construction (Tuesday) and the minutes from the October meeting of the Federal Open Market Committee (Wednesday).