The economic discussion this week was focused on the price of oil. At this writing the NYMEX price for WTI is listed at $57.96 per barrel, well below the 52-week high of $102.53 from last June 25th. The national average price for regular unleaded gasoline today is $2.60 per gallon, well below the year-ago average of $3.25 per gallon.
Falling oil prices lowered the producer price index for final demand, which declined by 0.2 percent in November. PPI has now declined for 3 out of the last 4 months. On a year-ago basis the PPI for final demand is still up 1.4 percent. The energy sub-index was down by 3.1 in November, its fifth consecutive monthly drop. The energy index has increased in only one month in the last 10.
Lower gasoline prices are stoking consumer confidence. The University of Michigan’s preliminary Consumer Sentiment Index for December surged to 93.8, well above consensus expectations.
More confident consumers are buying more stuff. Retail sales for November came in stronger than expected, gaining 0.7 percent and are up 5.1 percent from a year ago. Strong auto sales were a boost. Unit auto sales increased from a 16.4 million unit annual rate in October to 17.2 million in November. Retail sales of autos and parts were up by 1.7 percent for the month. Falling gasoline prices and robust job growth supported spending across a broad range of retail categories.
Business optimism is improving as well. The National Federation of Independent Business’s Small Business Optimism Index continued its upward climb, jumping to 98.1 for November.
Business inventories gained a subdued 0.2 percent in October. We expect inventories to be a slight drag on Q4 real GDP. Lower crude oil and petroleum product prices are exerting downward pressure in nominal inventories. After price adjustment, real inventories will be stronger than the October numbers show.
Labor market metrics continue to look good. Initial claims for unemployment insurance dipped by 3,000 to hit 294,000 for the week ending December 6. Anything below 300,000 is a very good number. Continuing claims for unemployment insurance jumped by 142,000, to hit 2,514,000 for the week ending November 29. We expect the jump in continuing claims to be reversed in the weeks ahead. The jobs opening rate from the October JOLTS report increased from 3.2 percent to 3.3 percent. With more job openings absorbing slack in the labor force and fewer job losses, the unemployment rate will continue to trend downward through early 2015.
The U.S. House of Representatives voted last night to approve a $1.1 trillion federal budget bill, averting a government shutdown. The Senate is expected to approve the bill within the next few days. The bill funds most of the federal government through September 2015.
For a PDF version of the Comerica Economic Weekly, including forecast tables and the variables calendar, click here: CMAEconWeekly 12-12-14.