Consumer Sentiment Falls Less Than Expected in December

Consumer sentiment slipped in December but was not far from the year's highs, suggesting Americans were guardedly optimistic about the economy in the holiday season.

The University of Michigan said the final December reading of its consumer sentiment index declined to 91.7 from 92.1 in November. The drop was less severe than expected on Wall
Street, where the median forecast called for a reading of 90.2.

Earlier, a separate government report showed personal income and spending rose more modestly than expected in November, while core consumer prices were unexpectedly flat in the month.

New orders for durable goods rose a larger-than-expected 1.9% in November on aircraft sales, but fell when airplane orders were stripped from the data, signalling continued weakness.

The Michigan consumer report said a measure of current conditions edged up on the month to 108.1 from 106.0 in November, but expectations about the future deteriorated, to 81.2 from 83.2. Price expectations over a one-year period, an important guidepost for interest rate policy, dipped to 2.9%, its lowest since February 2005.

That index was at 3.0% in November.

Smoother Picture

"The overall picture is made a bit more smoothe and less questionable by the revisions," said Pierre Ellis, a senior economist at Decision Economics.

"The inflation readings show contained inflation expectations, as the Fed has been hoping for, even if there's no indication of significant new progress," he said.

In an interview on CNBC's "Morning Call," Stephen Gallagher, an economist at Societe Generale, said this morning's data reinforces his view that the consumer remains on solid ground.

"What I see in the economy is the consumer is doing a very good job of reducing inventories...I think that puts us in a very good position for 2007," Gallagher said.

Personal spending advanced by 0.5%, after rising a revised 0.3% in October, the Commerce Department said. Originally, the government said spending rose by 0.2% in October.

Personal income rose at a seasonally adjusted rate of 0.3% a second month in a row. Originally, the government said income grew by 0.4% in October.

Those numbers were modestly higher than economists were predicting. On average, economists expected a 0.4% climb in personal income during November and a 0.5% increase in consumer spending.

A price index for personal consumption expenditures - or PCE - excluding food and energy was flat in November compared with a month earlier. It grew 0.2% in October. The measure is closedly followed by the Federal Reserve, which has recently stressed that inflation is more of a worry than the slowing economy.

Compared with a year earlier, the core PCE price index rose 2.2% last month, slowing from a 2.4% climb in October. The Federal Reserve's comfort zone is 1.0% to 2.0% for the core PCE as an inflation gauge. The central bank held interest rates steady last week for a fourth straight time, judging the economy will expand modestly going forward and inflation pressures will likely moderate over time.

Durable Orders Decline

In a separate report, the Commerce Department said durable goods orders fell a surprising 1.1%, excluding volatile transportation orders, which are heavily skewed by aircraft. It was the second consecutive monthly drop in durables orders excluding transportation and the fourth decline in the last five months.

Ahead of the report, economists were expecting new orders to rise by 1.0%, following a steep 8.2% decline in October.

Transportation equipment orders rose 9.4% in November, pushed up by a 7.2% gain in civilian aircraft orders and a 40% surge in defense aircraft and parts.

Excluding defense, orders rose 0.6%, slightly weaker than analysts' expectations of a 0.7% gain.

Nondefense capital goods orders excluding aircraft, a proxy for business spending, dipped unexpectedly by 1.4%.