Friday, December 11, 2009

More Good Economic News (Is Helicopter Ben Listening?)

There’s more good news on the economic recovery that everybody loves to hate.

Following a 1.1 percent rise in October, retail sales totally beat Wall Street estimates with a huge 1.3 percent gain in November. Meanwhile, core retail sales, which feed into the GDP report, have increase 5.6 percent at an annual rate over the past three months. These gains included general merchandise and department store sales (though apparel fell slightly).

Backing up these reports of better consumer spending, the Michigan Sentiment Index popped 6 points to 73.4, also much higher than expected. And business sales were up 1.1 percent in the month of October (the latest data), and have jumped 10.1 percent annually over the past three months.

Incidentally, business inventories -- led by manufacturing -- also rose in October. This is a signal that fourth-quarter real GDP could come in at 4 percent or stronger. And the powerful rise in business sales that have been leveraged off big productivity gains suggest a very strong profits picture.

Profits are the mother’s milk of stocks and the economy -- the only true form of stimulus. Profit naysayers have argued that only severe cost-cutting and downsizing have led to better earnings. But the rise in business sales spells top-line revenues, a very positive sign.

These economic-recovery signals should put some pressure on Helicopter Ben Bernanke to stop his free-money policies at the Fed. So should November import prices, which rose 1.7 percent. Driven by the declining dollar (until recently), import prices have increased in eight of the past nine months for a 10.1 percent pace. Over the past three months, import prices have gained 11.4 percent at an annual rate.

Economist John Ryding points out that import-price trends are closely related to consumer-price trends. The message? Inflation is going to pop up in 2010.

The Fed is fighting deflation because it doesn’t pay any attention to the sinking dollar and the soaring gold price. Will Helicopter Ben begin tightening sooner than people expect? Nobody knows. But if he listened to market-price signals he’d be a smarter Fed chairman.