Interview: University of Michigan---Curtin, Richard--Director of Consumer Survey
>> welcome back. u.s. consumer confidence rose in december to the highest since july. lower gasoline prices gave americans more money to spend over the holidays. that’s according to the latest university of michigan monthly sentiment index. let’s get an insider’s look at the index and the outlook for spending heading into 2006. richard curtin is director of consumer surveys at the university of michigan and joins us from his campus at ann arbor, michigan. thank you for being with us. what was behind the biggest jump in university of michigan confidence since january 2004?
>> well, it was that consumers are much more positive about their financial situation, with the decline in gas prices, they reported better financial gains than they have in some time. and when they look ahead, they think that their financial situation will continue to improve because they don’t expect any more increases in gas prices, although heating prices are still yet to be heard in consumers’ budgets.
>> heating prices could dent consumer spending. do you expect us to see evidence of that, say, in the next month’s reading on confidence?
>> i do. it’s hard to believe that consumers will ignore that. and i expect it would have some downward thrust to it. but i don’t think it will change the confidence level like we saw the surge in gas prices in late august, early september.
>> key focus on holiday spending, of course, this time of year. holiday spending got off to a relatively slow start but analysts are saying sales are gaining momentum. given the recent data, what is your holiday spending outlook?
>> it is more positive than it has been and over the past two months, really consumer confidence has been rising. i think that it’s about, compared with the 6% that perhaps the market expects, it will probably be 5.5% or around there. so a little less than the market forecast.
>> let me --
>> the real big news in december was the one area that didn’t improve was attitudes towards home buying and they continue to fall throughout 2005, although the fall was accelerated in the second half. and we have fewer consumers who have positive views of housing prices now than any time since 1982 and fewer consumers hold positive views of interest rates any time since the last recession in 2000 so that is a troublesome aspect of the outlook.
>> today, we learned november home sales fell by the most in 11 years. analysts talking about expecting a slowdown in cash-out refinancing. to what degree could this cap discretionary spending and confidence?
>> i think it will have a big impact on discretionary spending and that’s why i’m forecasting total consumer spending to fall to about 2.5% in 2006 over 2005. that’s down considerably from this year. but it’s still at a positive rate. and we should expect to see consumers somewhat more cautious in their overall spending this next year.
>> the job picture is healthy. does that add optimism to your outlook?
>> you know, consumers are very sensitive to news about jobs and in the most recent survey, we saw a spike up, the most in two years, talking about hearing news of job losses. and this is quite a concern for consumers. and overall, you know, where the consensus outlook from economists had us growing at trend and the unemployment rate staying fairly flat or declining a 10th or so, consumers think we’ll be slightly under trend and that will force the unemployment rate up a few tenths, perhaps half a percentage point, by the end of 2006. so consumers are somewhat more concerned about unemployment but not too the extent that they think a recession or even a downturn of any significant sort will occur.
>> how are you factoring in the climate of rising interest rates and inflation?
>> well, consumers, you know, they’ve been telling us in the surveys for nearly two years that they expect continued increases in inflation and based on the consumer data, i’d expect the fed funds rate to go up to about 5% before it levels off. and that’s consistent with this consumer concern about rising mortgage rates and they talk about rising rates on credit cards and installment loans, as well. all of these things are off slightly on the negative side, keeping confidence and spending a little less positive than it was this year.
>> again, summing up, richard, will consumer confidence -- consumer spending be much of a plus for the economic growth in the first half of 2006 as it was in the third quarter of 2005?
>> no, it will not be but it will will be a strong support for the economy but it will not be the leader. there, we need to look towards government spending and resurgence in business investment. >> thank you very much for joining us and happy holidays.
>> same to you.
>> our thanks to richard curtin, director of the university of michigan’s consumer survey. the new york city transit strike highlighted a growing crises in the public and private sectors, the high cost of pension prments. we’ll look at the high stakes of guaranteed retirement funds, next. points --
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Listen Market briefing --- Lori (slow)
NYSE --- Deb (fast)
Nasdaq --- Robert (slow)
Economic data --- Bob (fast)
Holiday shopping --- June (slow)
businesses trimmed orders for most types of equipment, suggesting two areas of strength in the u.s. economy are wave ering. first, a check of the closing arguments numbers on the last day of trading before christmas. the dow closing down six points -- some of the weaker sectors today were homebuilders and energy. the dow closes fractionally higher for the week, the same story for the s&p 500 as the nasdaq lost ground this week. very little change in the major market averages heading into a a three-day weekend. for more on the trading action, a report from deborah kostroun filed from the new york stock exchange.
>> not only did we see little changed in the major averages but also below-average volume at the new york stock exchange, not even breaking a billion shares. what we did have today, economic reports. new home sales fell by the most in 11 years as rising mortgage rates and higher prices leaving a record number of homes on the market . that led the bloomberg home building index to be one of the worst individual performers in today’s session. many homebuilders sharply lower. orders for durable goods had its biggest jump since may. many of the durable goods stocks mixed today but boeing notably they actually, possibly are getting a $10 billion order from singapore airlines. albertson’s, that was the biggest decliner in the s&p 500 on the day. the company saying it ended negotiations to sell itself and they may shed underperforming stores to stem market share losses to wal-mart. talks with a group of investors, including supervalu and c.v.s., concluded with albertson’s unable to accept a bid. energy stocks lower as crude oil fell 1% on the week. natural gas, one of the bigger stories this week, a two-day drop of 14% so you saw natural gas and integrated oil stocks lower. bausch and lomb falling on the day after the company saying they would restate earnings from 2000 to 2004 and restate for the first two quarters of 2005. you can see, down more than 8% in today’s session. we also got a report on consumer confidence. it rose for a second month in december, helping out retailers. retailers, some of the best performers in the s&p 500, especially ahead of the big holiday weekend. kohl’s actually added to the focus list at csfb, kohl’s, one of the biggest gainers among the retail names. retailers may meet sales forecasts for the holiday as they’ve been offering discounts and extending hours in the final shopping days. i’m deborah kostroun at the new york stock exchange for bloomberg news.
>> transport and retail stocks led the nasdaq higher on below-average volume there, too, ahead of the holiday weekend. robert gray has details on today’s nasdaq trading.
>> the nasdaq gained three points to finish higher in friday’s session but that was still three points shy of where it began the week, so, hence, it fell for a third consecutive week for the nasdaq composite. we saw below-average volume, about a billion shares trading on friday. on a typical day, the average in 2005, has been 1.8 billion shares and this is the last trading ahead of the holiday weekend, ahead of the christmas holiday weekend. we did see, within the nasdaq, we saw transports were the strongest group. transports, only up .3%. not a lot of movement for any of the industry groups in friday’s session. look within the transport, jetblue splitting stock after the close on friday, three for two, and other trucking naments moving higher, as well. within retail, urban outfitters rising, bed bath and beyond, sears holding, some of the best performers on the nasdaq 100 on friday. urban outfitters closing its first week as a member of the nasdaq 100. it was rebalanced last friday after the close with 12 new members in and 12 old members out as of the beginning of trading on monday. the nasdaq finishing down for the week. monster.com, one of the best performers on friday. it was the best percentage performer in the nasdaq 100. j.m.p. securities reiterating a strong buy, raising their estimates and lifting price target to $62 a share. red hat rising for the second day after beating analysts’ estimates and on its forecast. merrill lynch upgrading the stock to a buy. google shares finished lower on the day, though finishing their first week in the nasdaq 100 with a small gain. overstock.com shares falling. chief executive telling bloomberg television that holiday sales were disappointing and the stock began falling from there. as the nasdaq, i’m robert gray.
>> consumers are feeling good. one measure of consumer confidence rose to its highest level this month since july. it came on the same day as very weak news on housing. bob bowden joins us to break down today’s economic data. bob?
>> thank you. happy friday. a number of investors and homeowners have been scanning business news each day lately for news that housing prices have finally become unsustainable, a bubble ready to pop. but those indications have largely eluded them until perhaps today. u.s. home sales last month fell by the most in 11 years, the annual rate with just 1.245 million new homes sold, down over 11% from october. that 1.245 was also below the number economists expected, compared to 1.3 million expected. the average 30-year fixed mortgage resito 6.33% in november from 6.06% in october. different regions differ. the commerce department said sales fell in three of the four regions, led by a 22% drop in the west, 18% down in the midwest and 5.5% drop in the south but the northeast reported a 13% increase in home sales. the most alarming statistic, the number of homes for sale rose to an all-time record. sitting on the market , 503,000 in november. all-time high, even compared to sales, the supply of new homes would take 4.9 months to sell at the current sales pace. that was the highest monthly number in that category since december 1996. some investors we spoke with are not expecting, however, a volatile correction.
>> many have been expecting that housing will fall off the edge and it’s going to be a disaster for the economy. we just don’t feel that. we feel the financing gates are still wide open, that long-term interest rates, the level where they are now, is still attractive for homeowners and we think it will remain strong although coming off from what we had in 2005.
>> apart from the weak news on housing, there were uplifting signs with u.s. consumer confidence rising the highest since july. lower gasoline prices put more money in americans’ pockets and durable goods jumped the most in six months mostly because of demand for aircraft.
>>. excluding transportation, it was down .6%, durable goods, excluding transportation. that’s it for me. happy holidays, lori rothman, back to you.
>> same to you, mr. bowden. speaking of which, holiday, spending, retailers in focus. they may reach sales forecasts for the holidays after offering discounts and extending store hours. june grasso has more.
>> have you finished your holiday shopping yet? retailers are hope you haven’t. they hope they can reel you into stores with deep discounts until the last minute. the signs are clear. there are sales inside just about every store, even high-end luxury retailers like saks fifth avenue are reducing prices as much as 60%. department stores cut prices after thanksgiving to counter early lackluster sales and fend off discounters. the final push is on with sales on top of already discounted merchandise. retail analyst david abella says today is always one of the busiest shopping days of the year but this year, saturday’s shopping may help retailers make headway.
>> i think christmas eve which is normally not in the top 10 of all retail days, because it’s falling on a saturday, i think it has a chance to, for the first time in three years, fall into the top 10 and they can make it up on saturday.
>> the national retail federation forecasts sales to climb 6% to nearly $440 billion in november and december and analysts say there will be another push for sales in the week after christmas with hanukkah starting on christmas day and the rising popularity of the gift card. some merchants has be helped by rising internet sales.
>> in general for the internet, they’ll turn out to be up much more than the preseason predictions. i think they’ll be up for the about 30% or so for the industry as a whole.
>> online shopping revenue rose 24% to $17.5 billion from november 1 to december 21. as for the world’s biggest retailer, wal-mart has said december sales are climbing within its forecast, as much as a 4% gain. it started its earliest ever holiday sales promotion and is matching competitors’ prices to bolster sales. back to you, lori.
>> thanks a lot. when we return, we’ll have a new survey showing most money managers feel growth stocks are the way to go next year. we’ll speak with one of those behind the survey and learn why growth may replace value as the investment of choice. stay with us.
