Week of July 13, 2007
Retail Sales Post Surprise Decline
Retail sales fell in June after robust gains the previous month, a sign consumers may be feeling the pinch of higher
gas prices and the slumping housing market. The Commerce Department said retail sales fell 0.9 percent last month
after rising a revised 1.5 percent in May, which was the biggest monthly gain in more than a year. The headline
number was depressed by a 2.9 percent drop in auto sales and a 1.1 percent decrease in gasoline station sales last
Excluding autos and auto parts, which can be volatile from month to month, sales fell 0.4 percent in June from a
revised 1.6 percent surge in May.
The report came a day after some of the nation's biggest chain stores reported June sales at their stores open at least
a year, a key measure of retail performance known as same-store sales. June same-store sales numbers were a
mixed bag, with Wal-Mart, the world's largest retailer and the most closely-watched name in the group, delivering a
surprising better-than-expected gain in its same-store sales.
Consumer Sentiment Soars To 6-Month High
Consumer sentiment climbed by far more than expected in early July to its highest in six months due to a surging
stock market and reluctant acceptance of high gasoline prices. The Reuters/University of Michigan Surveys of
Consumers said its preliminary July consumer sentiment index came in at 92.4, well above a median forecast of 86.0
and June's final reading of 85.3, for the highest reading since January's 96.9. Although the jump in the index was
impressive, it was coming off a 10-month low in June.
The survey's gauge of current economic conditions was 105.7 in early July, above the final June reading of 101.9.
The preliminary June figure on consumer expectations was 83.9, above the final June figure of 74.7.
The economic outlook for the next 12 months climbed to 110 from 94 in late June, while the economic outlook for
the next five years rose to 104 in early July from 88 in late June.
Consumer Borrowing Makes Hefty Jump
Consumer borrowing posted a hefty increase in May, reflecting the biggest jump in credit card debt in six months.
The Federal Reserve reported that consumer credit rose at an annual rate of 6.4 percent in May, above the 1.1
percent gain of April.
The increase was propelled by a surge in the category that includes credit cards, which rose at a rate of 9.8 percent in
May after having a tiny increase of 0.2 percent in April. The jump in credit card debt was the largest since a 14.5
percent rate of increase in November.
The category of consumer credit that includes auto loans was also up in May, rising at a 4.4 percent rate after a 1.7
percent gain in April.
Wholesale Inventories Up
Inventories of unsold goods at U.S. wholesalers rose 0.5 percent in May, boosted by a buildup in a range of goods
including automobiles, metals and electrical supplies. At the same time, separate data showed weak retail sales as
consumers cut back on spending amid higher gasoline prices and continued troubles in the housing market.
The value of inventories rose to $396.66 billion after a 0.3 percent gain in April. The inventory-to-sales ratio -
which measures how long it would take to sell off stocks of goods at the current pace - fell to a record low of 1.11
months' worth from 1.12 months' in April.
Sales by wholesalers rose 1.3 percent to $357.17 billion in May following a 1.5 percent gain in April.
Sluggish Economy Sinks CEO Confidence
CEOs are less optimistic about the short-term economic outlook than they were last quarter, and confidence
measures saw an especially dramatic drop when CEOs assessed their own companies' sectors.
CEOs' assessment of current economic conditions were down slightly, to 23 percent of CEOs saying the economy
has improved, compared with 24 percent last quarter. In assessing their own industries however, only about 23
percent claim conditions are better, down from about 37 percent last quarter.
Overall, The Conference Board Measure of CEO Confidence, which had improved to 53 in the first quarter of 2007,
reversed course and fell to 45 in the second quarter after several quarters of sluggish economic growth. A reading of
more than 50 points reflects more positive than negative responses. The survey includes about 100 business leaders
in a wide range of industries.
In an assessment of the next six months, 17 percent of business leaders expect economic conditions to improve,
down from 27 percent last quarter, with about 17 percent expecting conditions in their own industries to improve,
down from 35 percent last quarter. Approximately 22 percent of executives expect to see their profits increase over
the next 12 months.
Gas Prices Jump After Indiana Oil Unit Shuts Down
Wholesale gasoline prices rose yesterday (July 9) after BP was forced to shut down a huge oil-processing unit at its
Whiting, Ind., refinery for maintenance. The unit, which itself is larger than many refineries, processes 250,000
barrels of crude per day. Gasoline rose 3.5 cents per gallon to settle at $2.3446 on the New York Mercantile
Oil Gains After IEA Sees Rising Demand
Oil prices climbed Friday after the International Energy Agency predicted no let-up in fuel demand next year despite
near-record prices. U.S. crude rose 24 cents to $72.74 a barrel in electronic trading. London Brent, seen as the best
indicator of the global market, was up 64 cents to $77.04, within sight of last August's $78.65 record. The IEA said
in its monthly oil market report Friday that world oil demand will grow more quickly in 2008 than this year,
boosting the need for crude from OPEC.
Gasoline Prices Still Creeping Up, But Some Relief Could Be In Sight
Gas prices rose again at the pump, but consumers might see some relief now that a major Midwestern refinery
appears ready to restart this weekend after minor repairs. The average national price of a gallon of gas jumped 2.6
cents overnight to $3.026 a gallon. Gas prices, which typically trail the futures market, have risen 7.7 cents over the
past week after falling from a late May peak of $3.227 a gallon.
According to AAA Kentucky, the Louisville-area price averaged $3.21 a gallon yesterday, up from $3.16 the day
before. At some area stations, the price for regular unleaded appeared to be falling back a few cents from this week's
highs of around $3.30 a gallon. Motorists posting at louisvillegasprices.com reported seeing just a handful of
stations offering gasoline for under $3.10 yesterday.
Analysts say the July 1 closure of a refinery in Coffeyville, Kan., after flooding, and the shutdown this week of a
huge piece of oil processing equipment at a BP refinery in Whiting, Ind., have sent prices in the Midwest and Plains
states sharply higher. A small refinery fire in New Jersey that was believed to have been sparked by lightning was
not seen affecting the Nymex market.
Housing Slump Gets Longer, And Longer ...
The slump in home sales and prices will be deeper and last longer than previously expected, according to the latest
forecast by the National Association of Realtors. The trade group is now looking for flat prices for existing homes
in the first quarter of 2008 compared to the first quarter of 2007.
The group now sees second-quarter existing home sales falling below the 6 million annual sales pace to a 5.96
million rate. That is still only a forecast, as final sales and price figures from the just completed period are not yet
available. If it is correct, it would be the first time in four years that quarterly sales were below the 6 million home
annual sales pace.
Foreclosures Dip, But That Won't Last-Report
Home foreclosures fell in June after jumping to a 30-month peak in May, but default rates will escalate as a horde of
mortgages reset at higher loan rates. Foreclosure filings fell 7 percent in June to 164,644 after jumping 19 percent in
May, but they remain 87 percent above last June's pace, with one filing for every 704 households.
"There are, depending on whose numbers you believe, somewhere between $600 million and $1 billion worth of
adjustable-rate mortgages that are going to reset in the second half," Rick Sharga, RealtyTrac's vice president of
marketing said. "We anticipate a fair number of those are going to go into default, so we really do expect probably
to see another spike in the Fall" for foreclosures.
Mortgages Up Despite Rate Surge
The Mortgage Bankers Association said its seasonally adjusted index of mortgage applications, which includes both
purchasing and refinancing loans, for the week ended July 6 increased 1.1 percent to 626.2.
The four-week moving average of mortgage applications, which smoothes out the volatile weekly figures, was down
1.6 percent at 627.0.
Borrowing cost on 30-year fixed-rate mortgages, excluding fees, averaged 6.65 percent, up 0.15 percentage point,
their highest since the week ended July 21, 2006, when it stood at 6.69 percent.
Jobless Claims Fall More Than Expected
First-time jobless claims fell by 12,000 in the week ended July 7 from the prior week's upwardly revised 320,000
level, according to the Labor Department. A Labor Department official said that temporary layoffs in the auto
sector as plants typically shut down for retooling have started to show up in the unadjusted claims data, but that the
department's seasonal factors have adjusted for this.
The four-week moving average, a more reliable measure of employment conditions because it irons out weekly
fluctuations, fell to 317,750 from 319,250. The number of workers remaining on jobless benefits inched down by
just 4,000 to 2.554 million for the week ended June 30.
AT&T Plans To Add 350 Customer Service Jobs
AT&T plans to add 350 customer service workers at its Chestnut Street offices in Louisville later this year. The
technical-support staff will help customers with AT&T's high-speed Internet service. AT&T expects to invest $1.5
million to accommodate the new employees, who will carry an annual payroll of about $10 million. The average
salary will be about $29,000 a year, and all jobs will pay at least $10 an hour.
Kentucky Foreclosures Up 10.4 Percent In June
Mortgage foreclosures dropped 7 percent nationwide in June, but rose 10.4 percent in Kentucky. A California
company that tracks foreclosures, RealtyTrac said there were 805 foreclosures in June in Kentucky, compared with
729 in May. The state ranked 30th in June, with one foreclosure for every 2,175 households. It ranked 34th in May,
with a one-to-2,401-households ratio.
Governor’s Office for Economic Analysis