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WHAT'S HAPPENING IN THE UNITED STATES

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The Week Ahead ...
The Week Ahead

13.30 Wed 13 November - Producer Prices (Oct). In recent months higher food and energy prices have lifted the overall rate of producer price inflation to 2.9%, while the underlying measure, which excludes both, has only recorded a 1.4% gain in the last 12 months. This pattern will probably be repeated in October with a monthly rise of 0.5% expected for the headline measure (3.2% year-on-year), but only 0.3% for the measure excludign food and energy (1.4%).

Wed 13 November - FOMC Meeting. The Federal Reserve are unlikely to make any change to monetary policy this month. The latest data have not given a clear signal towards either higher or lower interest rates.

13:30 Thurs 14 November - Consumer Prices (Oct). Consumer price inflation rose to 3.0% in September, but, as with producer prices, the underlying measure excluding food and energy prices has grown more moderately recently and is up 2.7% over the last year. This month consumer prices are expected to have increased by 0.3% on both measures, leaving the annual rates of increase unchanged.

13:30 Thurs 14 November - Retail Sales (Oct). September saw a healthy 0.7% increase in retail sales, but the impact on financial markets was diminished by the simultaneous announcement of a downward revision to August's figure. This was all the more surprising because retail sales data are very often revised upwards. The survey data suggest that sales growth in October was more moderate than in September and the markets are looking for a 0.5% gain.

13:30 Fri 15 November - Industrial Output (Oct). There was a big build up of stocks by companies in the third quarter of the year as demand fell short of output growth. Opinion is divided on whether or not this was voluntary. If it was, output growth should be sustained in the fourth quarter. If it was not, output will slow. The consensus forecast for industrial output in October is for no change, which reflects the mix of both opinions.

13:30 Fri 15 November - Capacity Utilisation (Oct). If the consensus forecast for industrial output growth is correct, capacity utilisation will have fallen to 83.0.

The week just past

The US elections produced the expected result. Bill Clinton was re-elected president, winning just under 50% of the vote to Bob Dole's 41%. This was enough to allow him to win in 39 of the 51 states (including Washington DC), giving him large majority in the electoral college that chooses the president. However, the Republicans retained control of both houses of congress, with an increased majority in the senate and a smaller majority in the house of representatives.

Productivity in the non-farm sector of the economy increased by 0.2% (at an annual rate) in the third quarter of 1996, thanks largely to a 6.3% increase in productivity in manufacturing. With hourly compensation increasing by 3.9%, this meant that unit labour costs increased by 3.7%. This followed a 3.3% gain in the second quarter. If this rate of gain is maintained overthe next few quarters either inflation will rise from present levels, or profits are going to be squeezed.

Commentary

The consumer holds the key to the strength of the US economy in the next few quarters. The slowdown in demand and output growth in the economy in the third quarter was mainly due to weaker consumer spending. This was despite strong income growth, and the personal saving ratio rose as a result.

If this is the start of an upward trend in savings, then economic growth will remain moderate, inflation pressures will stay low and the Federal Reserve will not have to increase interest rates.

If spending again grows in line with incomes (or even faster), then economic growth will accelerate, inflation pressures will build and interest rates will go up.

Income and consumption data for October won't be available for a few weeks yet, but this week's release of retail sales figures for October will provide the first clue to what consumers are doing with their money now. Are they saving it or spending it?

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