Thursday, December 13, 2007

Retails Sales, Inflation & Jobs: Why Would the Fed Cut Again?

This news today had to put a crimp in the "fed will cut again" camp..

Retail sales increased by 1.2%, up from an an unrevised 0.2% in October. The estimate from economists was a 0.6% advance in November. They had been expecting consumer spending, and the economy as a whole, to slow sharply in the final months of 2007. Thursday's figure show that is just is not happening.

Here is here it gets bad for those wanting another cut from the Fed.

The PPI jumped 3.2% in November, the biggest one-month rise since August 1973. The core PPI, which excludes food and energy, was up 0.4%, matching the biggest increase in one year. This doubled expectations of a 1.7% rise in the headline index and 0.2% rise in the core. In the 12 months through November, wholesale prices rose 7.2%, the largest increase since November 1981. If we drill down into the production pipeline, we see proof that inflationary pressures are increasing. Prices of raw materials rose 8.7%, though excluding food and energy they fell 0.5%. The prices of intermediate goods rose 3.7% overall and were up 1% excluding food and energy.

Finally, the number of U.S. workers filing new claims for unemployment benefits fell last week, consistent with the recent increases in monthly payrolls we have seen. Initial claims for jobless benefits fell by 7,000 to 333,000. Once again this was better than estimates that had expected no change from the previous week.

The four-week average of new claims, used to even out weekly volatility, fell by 2,000 to 338,750.

So, we have higher retail sales than expected, higher employment than expected and higher inflation that expected. Why would the Fed be inclined to cut again? If their charge is to balance growth and inflation, then currently the risk is too higher inflation.

The real problem here is that Wall St. just thinks things are far worse than they actually are. In all reality, things are not bad a t all. Sure housing sucks but unless you are actually selling a home, it had very little effect on you.

I mean the folks down the street are trying to sell their house (it is way overpriced), their success or failure in that venture has ZERO effect on my holiday spending plans. I am pretty sure the other 60 plus households in the development feel the same way.

do not fret though, as 1/1/2008 rolls around and we fund the Coverdales and IRA's for the year, there will still be plenty or real cheap picks out there to choose from. My top choices will be Citigroup (C), Dow Chemical (DOW), Sherwin Williams (SHW), Sears Holdings (SHLD) and Wachovia (WB).

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