U.S. economic data at the end of 2011 shows an economy that is getting steadier after a shaky journey through most of the year. The Producer Price Index and Consumer Price Index for November show that price pressure, largely from elevated commodity prices early in the year, is easing. The PPI for November ticked up by 0.3 percent and the CPI was unchanged. This comes at a time when labor market data is improving, and households are feeling confident enough to start unleashing some pent-up demand, held in check now for the past four years. Easing inflation gives the Federal Reserve a little more maneuvering room as it debates another round of quantitative easing and ponders the potential drag from a Euro-zone melt down. Easing inflation also gives households a break by increasing purchasing power; real disposable incomes will start to increase after being flat for most of 2011. Easing inflation is especially welcome news to retirees, living on fixed incomes, and earning paltry interest rates on their nest eggs. Shoppers had to catch their breath in November after solid gains to retail sales in September and October. The whole set of consumer-related economic data so far in the second half of 2011 supports a narrative that says consumers have ample pent-up demand and would like to spend more, but have been constrained by weak income growth and a reluctance or inability to take on more debt. The November NFIB small business Optimism Index ticked up by 1.8 points. The level of the Optimism Index remains in a somewhat depressed range, but at least it is heading in the right direction. More small business owners say they are planning to create new jobs over the next three months. Capital spending plans improved slightly. Job openings for October ticked down slightly to 3.3 million. There is no reason to think that the upward trend in jobs openings, in place since mid-2009, will be challenged. Business inventories for October increased by 0.8 percent. Stronger inventory accumulation in Q4 will be supportive of real GDP growth. Risks to our December forecast of 3.1 percent real GDP growth for Q4 are accumulating on the upside, however, recession in Europe and cooler demand growth from China loom ominously in early 2012.
Click here for the complete Comerica Economic Weekly for 12/16/11, with forecasts for next week’s data releases and an updated December data calendar: CMAEconWeekly121611.