Consumer Sentiment Drops;
Producer Prices Slip 0.3%

WASHINGTON – Consumer sentiment unexpectedly declined in a mid-December reading.

Separately, wholesale prices fell for the first time in six months in November amid a drop in costs for food, energy and automobiles. Meanwhile, the trade deficit grew in October, thanks to voracious American consumers. Exports rose sharply, though, a sign economic activity is picking up overseas.

The University of Michigan reported Friday its index measuring consumer sentiment slipped to 89.6 from 93.7 at the end of November. Economists had expected the measure to increase to 96. Gauges in the report measuring consumers' assessment of current and future conditions also declined.

The unexpected decline sent investors fleeing to the relative safety of the government-bond market. (See full coverage¹ of market activity.) But Joshua Shapiro, chief U.S. economist at MFR Inc., suggested the report isn't anything to worry about. "The December decline in the University of Michigan index is well within the range of normal volatility," Mr. Shapiro wrote in a note to clients. "Indeed, the current cycle continues to mimic the pattern seen after the 1990/91 recession."

Meanwhile, the Labor Department reported that its producer-price index, which measures the cost of finished goods before they hit store shelves, declined 0.3% last month. That followed a 0.8% gain in October. Economists had expected a 0.1% increase in overall prices, according to a survey by Dow Jones Newswires and CNBC.

Excluding food and energy items, prices fell 0.1% last month, after rising 0.5% in October. Prices of food, which account for a fifth of the index, fell 0.3% after three straight months of gains. Energy costs fell 1.2%, led by a 4.8% drop in gasoline prices.

Prices of automobiles skidded 0.8%, the biggest decline in seven months. The cost of heavy motor trucks declined 0.4%.

Computer prices continued to tumble, dropping 1.2% after a 1.8% decline in October. Capital-equipment costs fell 0.1%.

Drug prices fell 0.1% after two straight months of gains. But tobacco prices rose 0.1%, after a 0.5% gain.

In the 12 months through November, producer prices jumped 3.4%, the same as in October. The core index climbed 0.5% in annual terms, also the same as the previous month.

Further up the production pipeline, prices of crude, or unprocessed goods, rose 0.2%. Prices of intermediate goods fell 0.2%.

In a separate report, the Commerce Department said that the trade gap widened to $41.77 billion in October from a revised $41.34 billion in September. Economists had expected a trade deficit of $41.8 billion.

Demand for imports was so great that it overwhelmed export growth, including the strongest showing for sales of farm products in seven years. Exports rose 2.6% to $87.96 billion, the highest level since March 2001. Imports grew 2.1% to a record $129.73 billion.

The broad-based export gains were a sign that growth outside the U.S. may be perking up. Foreign sales of U.S. foods, feeds and beverages rose to $225 million, the highest level since June 1996. Exports of industrial supplies like chemicals, iron and steel, and cotton also were higher, as were sales of capital goods such as aircraft and telecommunications equipment.

Imports were fueled by record demand for foreign-made consumer goods, which rose $1.47 billion. Demand for foreign cars and parts was also higher, and demand for foreign-made capital goods such as computers and engines hit its highest level since April 2001.

The deficit with China hit a record $13.57 billion, even as U.S. exports to the Pacific-Rim nation reached record levels. The deficit with Japan expanded to $6.44 billion.

The shortfall with Canada narrowed to $4.91 billion and the deficit with Mexico expanded to $3.53 billion. The trade gap with Western Europe rose to $9.43 billion.

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Updated December 12, 2003 2:45 p.m.