A survey showing consumer confidence is down comes as a surprise to many economists.
By Associated Press
Published December 13, 2003
Consumers' moods soured badly in the middle of December as assessments of current conditions staged a big and unexpected retreat, according to a survey by the University of Michigan.
The preliminary index on consumer sentiment for December is reported to have shown a decrease to 89.6 from 93.7 in November, the Associated Press said, citing unnamed sources who saw the report Friday. The Michigan report is released only to subscribers.
The report was well below what economists had expected, and its decline was particularly surprising given the tenor of recent economic reports. Forecasters surveyed by Dow Jones Newswires and CNBC had expected to see a reading of 95.2 for mid December.
Among those reports, the Labor Department said Friday that wholesale prices retreated by 0.3 percent in November, pulled down by falling costs of gasoline, beef and cars, suggesting that the economy's resurgence isn't fanning inflation.
The decline in the Producer Price Index, which measures prices before they reach store shelves, came after prices rose by 0.8 percent in October, the department reported. That jump had unsettled some analysts, who worried whether the onset of inflation was starting.
Economists were expecting wholesale prices to calm down in November after October's big increase. But they were forecasting a tiny, 0.1 percent rise. The 0.3 percent drop marked the first decline in wholesale prices since May.
"There is no inflation threat to the current economic rebound; none whatsoever," said Mark Zandi, chief economist at Economy.com.
In another report, the Commerce Department said the trade deficit rose to $41.77-billion in October. Shoppers' preference for imports hit a record high, offsetting a sizable gain in exports, including the best showing for sales of farm products in seven years.
The October trade imbalance was up 1 percent from a September deficit of $41.34-billion and was the biggest deficit number in five months.
Because inflation has been tame, the Federal Reserve, at its last regularly scheduled meeting of the year Tuesday, held a key short-term interest rate at a 45-year low of 1 percent and suggested it could stay there for some time. Fed policymakers also said the dangerous prospect that inflation could move into deflation was less of a concern than it has been.
"The probability of an unwelcome fall in inflation has diminished in recent months and now appears almost equal to that of a rise in inflation," they said.
The worries about deflation should dim as the economy gains traction, analysts say.
The Michigan index on current conditions plummeted to 93.6 as of the middle of the month from 102.5 in November and 99.9 in October.
Economists were unsure about how to interpret the Michigan data. "Clearly the news seems to be at odds with recent data," said Joe Lavorgna, economist with Deutsche Bank in New York.
The report may simply be an aberration, he said. "Maybe they got a few Grinches ahead of the holidays," Lavorgna said.
The economy grew at a scorching 8.2 percent annual rate in the third quarter, the hottest pace in nearly two decades. Analysts think the economy slowed to a 4 percent growth rate in the October-to-December quarter, which would still be considered a healthy pace.
Still, in November price declines were fairly widespread. Excluding energy and food prices, which can swing widely from month to month, "core" wholesale prices dipped by 0.1 percent in November after a 0.5 percent advance in October. Analysts were expecting core prices for past month to be flat.
"Looking at this you would think deflation is a real threat, but it is not. The decline in the PPI belies some measurable improvement in businesses' pricing power," said Zandi, who thought Fed members were correct Tuesday in saying there was a receding risk of inflation moving lower. "Deflation risks have all but vanished," he said.
For the 12 months ending with November, wholesale prices rose 3.4 percent, while "core" prices nudged up 0.5 percent.
In November, energy prices fell 1.2 percent, after dipping 0.1 percent in October. Gasoline prices in November dropped 4.8 percent, home heating oil fell 1.6 percent and residential natural gas prices went down 1.1 percent.
Food prices declined 0.3 percent last month, compared with a 2.2 percent jump in October. The decline last month in part reflected a 4.7 percent drop in the price of beef and veal.
Elsewhere in the report: car prices dropped 0.8 percent in November and communications equipment fell 0.4 percent.
