9311djl (01/14/83)
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9311djl (01/14/83)
W E E K L Y B U S I N E S S S U M M A R Y
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Vol. I No. 13 January 14, 1983
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_H_E_A_D_L_I_N_E_S
o+ The Labor Department reported today that the Producer Price Index
measuring wholesale prices rose a minuscule 0.1% in December
resulting in only a 3.5% increase for all 1982. This level of
3.5% was the lowest figure since 1971 and it was only half the
increase recorded in 1981. This modest increase in the PPI
portends small increases in the CPI for the next half year.
In a separate report, the Federal Reserve Board reported that
industrial production fell again in December at a rate of 0.1%.
This drop is not as significant as some economists had expected.
o+ The Christmas selling season did not provide the sharp increase
in sales economists had hoped. Retail sales for the month of
December fell 0.4% to a seasonally adjusted annual rate of $92.3
billion. The figure was adjusted to discount the fact that sales
in December are always higher because of the holiday selling
season. Sales of automobiles, which fell 4.1%, led the decline
while nonauto sales were up 0.5%. The fall in auto sales were
not a disappointing result since November's performance was
robust having jumped 12.5%. So, December's result was actually 8%
above October's figure. In fact, December auto sales were up
25.3% over December 1981's figure as reported in last week's WBS.
Retail sales for all 1982 hit $1.07 trillion up 3% from 1981.
This lackluster sales increase is not nearly enough to lead the
economy out of recession.
o+ Major U.S. banks lowered their prime lending rate from 11.5% to
11% the lowest level since August of 1980. On December 28, 1982,
Chase Manhattan had lowered its rate to 11% but nobody followed.
The drop in the prime was caused by two factors: weak business
demand for credit and drops in the banks' costs for borrowing
funds, e.g. the discount rate. The prime will probably fall
slightly in early 1983 and then will rise when demand for credit
picks up. The WBS believes demand will not pick up until the
third quarter because firms will not be spending (capital) until
consumer demand picks up. Expect a one quarter lag between
increased consumer demand and increased credit demand. But the
prime will not drop too far because banks will keep a higher
profit margin.
o+ Americans took on $2.52 billion more in new installment debt than
they paid off in November. The $2.52 billion gain was the
biggest one month increase since September 1981. The surge in
auto loans in November was the major push behind the increase.
$1.82 billion was accounted by the increased car loan demand.
Consumer willingness to accept more debt is a sign that they may
be gaining more confidence in the economy. So, as consumer loan
rates continue to fall, we can expect the same jumps in consumer
borrowing which are equivalent to spurts in consumer spending.
o+ A recent survey showed that business executives are still
uncertain about the prospects of economic recovery and are
planning to cut spending for expansion and modernization in 1983
the second straight yearly cut. Capital spending was down 4.8%
in 1982 and will be cut 5.2% in 1983 after discounting for
inflation. The Bell System will cut its construction program to
$15.5 billion from 1982's level of $17.3 billion an 11.6% drop.
o+ Auto sales for the first ten days of 1983 were up 11.6% over the
same period last year. U.S. automakers are expecting a good
sales year and will produce more cars than in 1982. This lights
up a dark auto employment scene.
o+ Inventories declined 1.1% in November as sales improved and
production continued to decline. It was the largest drop the
government has ever reported. Total sales by manufacturers,
wholesalers, and retailers rose 1.2% in November. This is good
news because as inventories fall and sales increase, production
will also tend to be increased, the background for economic
recovery. The ratio of inventories to sales fell from 1.55 to
1.51 in November.
stic growing these days
is the federal budget deficit? The deficit will loom in the $150 to
$200 billion range in the foreseeable future. Large deficits may
stifle any economic progress not because government borrowing will
"crowd out" private investment, but because large deficits in the past
signified to investors high inflation. And with these expectations of
high inflation, investors will demand only high interest rates. (That
is one reason why real interest rates are so high today.) And we know
that high interest rates inhibits capital spending for production
expansion. And this lowers the number of people employed.
Congress and the Reagan Administration must make at least modest
attempts soon to reduce the budget deficit. Defense spending can be
cut because actual inflation rates are much lower than the rates
assumed in budget planning. Social Security benefits and other
entitlement programs need to have their growth in expenditures
checked. If only $30 billion can be cut from the deficit, investors
may see the attempts as a positive move to reduce the budget and
therefore will result in lower expectations of future inflation.