Are Households Saving Their Pump Savings?
The fall in gasoline prices was supposed to provide some high-octane fuel to retail sales. But for two months in a row, nominal retail sales contracted, suggesting that households were not spending all of their savings at the gas pump of late on other items. But, of course, the (horseless?) carriage trade’s spending might not be heavily affected by lower gasoline prices inasmuch this item represents relatively little of its total spending on goods. But how do you explain two consecutive months of minuscule Wal-Mart same-store sales? Year-over-year comps for Wal-Mart in October and November were 0.5% and minus 0.1%, respectively. The November performance for Wal-Mart was the weakest in 10 years. Wal-Mart’s customer base encompasses those for whom gasoline is a relatively large component of their total purchases of goods. Could it be that the masses are saving their pump savings?
Price Reports Will Dominate Week Inundated with Reports and Speeches
This week is inundated with economic reports and speeches. The most important speech is Chairman Bernanke’s economic outlook speech on Tuesday, November 28, at the University Club in New York. Speeches by other officials of the Fed during the week will offer clues about what aspects the FOMC is focusing on if they bear close resemblance to Mr. Bernanke’s remarks. Of the reports to be published during the week -- GDP, personal income, personal consumption expenditure deflator excluding food and energy, ISM manufacturing survey, car sales, sales of new and existing homes, and the Home Price Index (HPI) published by the Office of Federal Housing Enterprise Oversight (OFHEO), jobless claims, and Consumer Confidence -- prices of homes and core inflation as measured by the personal consumption expenditure price index excluding food and energy (core PCE price index) are most likely to move markets more than others.
The core PCE price index moved up 2.42% in September on a year-to-year basis, after a possible peak reading of 2.48% in August. The Consumer Price Index excluding food and energy increased 2.7% in October vs. a 2.9% gain in September. Based on this information, a moderation of the core PCE price index is expected in October. The report will be published on November 30. The deceleration of this price index will be necessary for the FOMC to change the tone of the rhetoric about the future course of monetary policy.
The HPI, published by the OFHEO, has shown significant deceleration from the peak of a 14.0% year-to-year change in the second quarter of 2005. The HPI rose 10.1% on a year-to-year basis in the second quarter of 2006. The third quarter estimate will be published on November 30.
Prices of single-family homes, both existing and new, fell 2.5% and 9.7%, respectively, in September.
