Friday, September 14, 2007

Light at The End of The Tunnel?

The US economy slowly limps forward, as the September 18th Federal Reserve meeting, a meeting where many hope and expect the Fed to cut rates, quickly approaches. The economic turmoil that has engulfed the markets is certainly giving the cause for a 0.25% or 0.5% cut a nice lift. And the economic reports released today are also doing their part.

The Retail and Food Sales number came in at a less than expected 0.3% increase. Economists projected that number closer to 0.5%, with estimates ranging from 0.1% to 1.2%. Purchases excluding automobiles came in even worse, falling unexpectedly by 0.4%. It was forecast to increase by 0.2 percentage points. Retail sales, which has been relatively strong for the past few months, appear to be stalling a bit. That is terrible news for an economy growing at a slow-to-moderate pace, trying to fight off the demons of a worsening housing market and a pending credit crunch.

"The consumer is pulling back a bit. Maybe some of the issues in financial markets and housing are starting to limit the upside."- Peter Kretzmer, Senior Economist at Banc of America Securities LCC.

The retail sales number will most definitely impact the decision that the Fed will take on during the September 18 meeting . It strengthens the case for an interest rate cut in order to promote growth and prevent the looming recession.

The Labor Department also released the Import Prices report today. The price of all goods imported into the US fell unexpectedly in August by 0.3 percentage points, the first drop since January. The drop will probably be short-lived though. The number was caused by a drop in the price of oil and natural gas in August. Commodity prices have risen since then, so we can expect that number to rise once again.

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