0.2%, hardly enough to get excited, but auto sales being up is quite promising, if it can be sustained.  Auto sales could be up due to the seasonal heavy discounting of inventory that occurs in the auto industry in October.  GM’s report of a much smaller loss at $1.2 B also contributes to the good news.  Still the 0.2% gain ex-autos is troublesome & the sharp downward revision of the September Retail Sales figures does not add any confidence.  November’s release will demonstrate a trend or continued volatility.

 

Inventories reported a 0.4% decrease in September.  This will likely lead to an increase in manufacturing output to replenish the depleted stockpiles.  This should bode well for holding up employment in the manufacturing sector, which was still shedding jobs at last report.  However, continued contraction in housing sector employment should be expected as inventories, although high, are declining.  Further support to maintaining the slow return to a more normal housing inventory to demand ratio, is the slow tapering of job losses.  Thursday & ongoing weekly reports on new unemployment claims through the end of the year & even into 2010, will be critical to maintaining confidence.

 

The Holiday season shopping results will be critical to maintaining investor confidence & there are plenty of potential risks.  The average consumer has increased their regular savings contributions as a result of the “Great Recession” impact.  Black Friday may likely demonstrate consumers’ willingness to grab discount items, but the actual test for the economy will be evidenced by how much consumers are willing to buy items that are not in the loss-leader & minimal profit margin categories.  The National Retail Federation is predicting a 1% decrease in sales from last year for the Holiday shopping season.  If this Black Friday reports at 1% down from last year, this will likely be taken as a bad sign for the rest of the season, as it may be interpreted that further declines would only continue.

 

 

This Week:  Purchaser Price Index, Mortgage Applications, Housing Starts, Consumer Price Index & Unemployment Claims, may give some clues.

 

This Economic Commentary is NOT AN INVESTMENT RECOMMENDATION.

 

Richard Stephenson

Residential Mortgage Division

Bank of America