Sluggish retail sales data were announced this week following a report that consumer borrowing increased in November by the highest amount in a decade. This suggests that while spending isn't particularly strong, consumers are nonetheless continuing to spend and provide moderate support for the overall economy. For the week ended January 13, the S&P 500 Index rose 0.9% to 1,289.09 (for a year-to-date total return-including price change plus dividends-of about 2.6%). The yield on the 10-year U.S. Treasury note fell 9 basis points to 1.89% (for no change year to date).

Wednesday's Beige Book report showed strengthening output and job growth in all regions from late November to the end of December. Most districts reported higher holiday retail sales than last year, and demand for professional and transportation services increased. Manufacturing also increased, although the pace has slowed. Residential real estate activity held steady at very low levels and prices remained stable.

U.S. consumer borrowing rose nearly 10% in November, the highest increase since October 2001. The chief driver was the $14.8 billion surge in nonrevolving credit, which includes federal and student loans.

Credit card debt and other revolving credit rose by $5.6 billion for its largest monthly gain since March 2008. To date, consumer credit has increased in all but one month in 2011.

Retail sales rose 0.1% in December, the slowest increase since May. While sales of auto, furniture, and building supplies increased, sales at electronics stores, gas stations, and other general merchandise outlets fell. At 6.5%, year-over-year growth was at its weakest since August 2010.

Declining housing prices, low consumer confidence, and fears of higher taxes and reduced government spending all appeared to weigh heavily on spending. Low inflation remains a positive.

Business inventories rose 0.3% in November after building 0.8% in October. Economists had forecast a 0.4% increase. The inventory-to-sales ratio held steady at 1.27, well below the recession high of 1.49. Inventories are a key element for measuring changes in gross domestic product. November manufacturer inventory accumulation was reduced by half. The retail inventory-to-sales ratio was at an all-time low of 1.32.

The U.S. foreign trade deficit widened in November to $47.8 billion-from $43.3 billion in October-as imports increased 1.3% and exports declined 0.9%.This latest deficit shortfall was the largest since May's $6.9 billion increase. Exports have weakened substantially in the last few months as the European, Asian, and Latin American economies have slowed. The European region accounted for about half of the widening.

"In addition to weaker U.S. exports, the widening gap has been driven by increased imports," said Vanguard senior economist Roger Aliaga-Díaz. "This isn't necessarily all bad, since higher imports are evidence of stronger consumer demand and business restocking."

Upcoming reports include producer prices and industrial production (Wednesday), consumer prices (Thursday), and new residential construction and existing-home sales (Friday).

Professor and Community Development Economist

Department of Agricultural and Applied Economics
515 Taylor Hall --- 427 Lorch Street
University of Wisconsin-Madison/Extension
Madison, WI 53706 

608-263-6251