Wall Street & White House Agenda

@ The White House

In the morning, the President will pardon the National Thanksgiving Turkey in a ceremony in the North Portico. In the afternoon, the First Family will participate in a service event in the Washington, DC area.

@ Wall Street

Personal Income, Consumption, and Prices

October retail sales did relatively well considering that consumer confidence is in recession territory. Clothing and department store sales took a hit, and general merchandise was flat, but Apple?s newest iPhone sent electronic and online retailers' sales soaring. In addition, many large chain stores are trying to offer lower prices to gain market share and increase revenue. And auto sales came in at a nice 13.2 million units.

 Inflation was close to zero in October, with a notable CPI decline for gasoline, and core consumer goods also down slightly, so the 0.3% increase in nominal spending should translate into the same 0.3% increase in real spending. Over the past year, wage gains have run below price increases, but consumers have kept spending growing by saving less.

Looking ahead to holiday sales, we expect Black Friday to be relatively strong, and Cyber Monday to be record breaking. E-commerce retail sales as a percentage of total retail sales reached 4.6% in the third quarter - the highest share on record. We expect holiday retail sales to come in 4.2% higher than last year, although about half of this increase is due to higher prices. (Holiday sales are defined as not seasonally adjusted November plus December total retail sales, less autos, gasoline, food services, and non-store outlets.) Holiday sales rose more than 5% last year, after two consecutive years of hanging in negative territory. 

However, in the fourth quarter of 2010, many retail prices were falling on a year-over-year basis.

The core (non-energy and nonfood) PCE price index is expected to edge up 0.1%, with its year-over-year growth rate remaining at 1.6%. Monthly core inflation rates have eased sharply from earlier in the year, allowing the Fed to keep its focus on weak employment growth and the risk of damaging spillovers from the Eurozone financial crisis.

Durable Goods Orders (Oct.)

The recipe for an abysmal durable goods orders report is simple. Take a one-month collapse in aircraft orders, add a first-month-of-the-quarter drop in turbines, and sprinkle with mediocrity almost everywhere else?October 2011 is set to deliver that recipe.

Boeing had a bad October, garnering only seven orders and having five cancellations, but this is just a one-month affair, as September and November were both great. Turbines always drag down machinery (and core capital goods) orders in the first month of the quarter, so that is also mere noise.

Defense is a wild card, but the first month of the government's fiscal year has recorded double-digit percentage declines in four of the past five years. The key message is that the durables headline is likely to be ugly, but that it will be a very misleading indicator of the underlying health of manufacturing, which is still gradually improving.

Reuters/University of Michigan Consumer Sentiment Index (Nov., final)

The consumer mood is still at depressed levels, but the easing of inflation and the bounce back in equity markets is assisting in pushing the consumer sentiment index up.