An Overview on US Consumer Spending and Business Trends

Consumer surveys indicated some deterioration in consumer confidence in January. Recent indicators of housing demand and activity were mixed. Sales of new homes edged still lower in November (latest data available), and sales of existing homes declined by a larger amount in December than in November. However, housing starts rebounded in November from a sizable October decline, and conditions in mortgage markets remained quite favorable, led by a further decline in rates.

The sparse statistical data available on business fixed investment, along with anecdotal information, suggested a moderation recently in the expansion of business spending on capital goods, including some slowing of investment in computers. Investment in transportation equipment, however, apparently had held up well in the fourth quarter. Incoming data on construction contracts pointed to some slowing in the growth of nonresidential building activity from a relatively brisk pace.

The information available on business inventories suggested that inventory imbalances might have emerged in a few sectors in association with weaker-than-expected sales. Motor vehicle inventories were at elevated levels, and manufacturers responded by offering incentive packages on new cars and trucks and by adjusting downward their January production schedules. Data on manufacturing and retail trade inventories for November had been delayed, but published information on inventories held by wholesale distributors indicated a decline in that month, reversing part of October's sizable run-up. Much of the decline occurred in nondurable goods, although machinery distributors also reported a sizable liquidation. The inventory-sales ratio for the wholesale trade sector edged down in November but remained near the high end of its range in recent years.

The nominal deficit on U.S. trade in goods and services narrowed in October from its average rate in the third quarter. The value of imports declined by more than the value of exports. Much of the contraction in imports reflected reductions in oil and automotive products that more than offset another strong rise in computer goods. For exports, an advance in machinery exports to record levels was outweighed by a reduction in shipments of agricultural and automotive products. Available data on economic activity in the major foreign industrial countries suggested that the pace of expansion in Europe had slowed further on average while growth in Japan had picked up a little.

Recent data suggested little change in underlying inflation trends. Consumer prices increased slightly in December after being unchanged in November; food prices were quiescent over the two-month period while energy prices rose on balance, with a December rebound more than offsetting a sizable November drop. Excluding food and energy items, consumer prices were up modestly over the November - December period advanced slightly more than in previously. Producer prices of finished goods were up considerably in November and December after having risen slowly in earlier months; in large part, the price increases late in the year reflected sharp upward movements in both finished foods and finished energy prices. For 1995, producer prices of finished goods other than food and energy rose at a subdued pace, though somewhat more than in the year before. Commodity prices had been mixed recently after trending down earlier. Average hourly earnings of production and nonsupervisory workers increased somewhat in December after having been unchanged in November. Increases in average hourly earnings had been trending up over the past several years.