Industrial Output and Retail Sales Slump: What We Learned During the Week of April 11-15

Spring weather blossomed across parts of the U.S. last week. The same could not be said about the industrial production and retail sales data released last week. Here are the 5 things we learned from U.S. economic data released during the week ending April 15.

#1Industrial production slowed in March, with declines in all 3 sectors. The Federal Reserve reports that industrial output contracted 0.6% for a 2nd consecutive month, leaving it 2.0% below year ago levels. Also falling for a 2nd straight month was manufacturing output, with a 0.3% drop. Output of durable goods slumped 0.4% while that for nondurables slipped 0.1%. The former was hurt by roughly 1.5% decreases in the output for both automobiles and electrical equipment/appliances. On the flip side, production of computer and electronic products expanded by nearly 1%. Mining output fell by another 2.9%, its largest single-month drop since September 2008 as coal mining and oil/gas extraction continued to slow. Utility output decreased 1.2%, its 5th decline in 7 months. Overall capacity utilization dropped by a half percentage point to 74.8%, its lowest reading since August 2010. For the manufacturing sector, capacity utilization contracted by 3/10ths of a point to 75.1%, its lowest point since April 2014.

#2Retail sales continued to dither in March. The Census Bureau estimates retail sales were at a seasonally adjusted $446.9 billion, down 0.3% for the month and up a relatively tepid 1.7% from a year earlier. Some of the weakness can be linked to the 2.1% drop in sales at auto dealers and parts stores, which have cooled a bit from their record pace of a few months ago. Net of sales at auto dealers and at gas stations (which saw sales gain 0.9% due to recent prices gains), core retail sales eked out a 0.1% increase for the month and were 3.9% above March 2015 levels. Growing during the month were sales at building material retailers (+1.4%), general merchandisers (+0.5%), furniture stores (+0.3%) and sporting goods/hobby retailers (+0.2%). Sales declined at apparel retailers (-0.9%) and at restaurants/bars (-0.8%). Grocery store sales were flat in comparison to February.

#3The recent bump up in gasoline prices pulled up consumer prices. According to the Bureau of Labor Statistics, the Consumer Price Index (CPI) increased 0.1% during March and was 0.9% above year ago levels on a seasonally adjusted basis. Energy CPI gained 0.9%, its 1st positive reading since last November. Gasoline prices jumped 2.2% during March, following drops of 13.0%, 4.8% and 4.8% over the previous 3 months. Also increasing were prices for fuel oil and electricity, while the price for utility delivered natural gas fell 0.7%. Meanwhile, food CPI dropped 0.2%, with the food at home index (i.e., prices at grocery stores) showed its largest single-month price decline since April 2009
(-0.5%). Net of energy and food, core CPI increased 0.1% during March and was 2.2% above year ago levels. Rising were prices for shelter, transportation services and medical care commodity/services. Meanwhile, apparel prices fell 1.1% during the month.041516

#4Lower prices for services pulled down wholesale prices during March. The BLS’ Producer Price Index (PPI) for final demand slipped 0.1% on a seasonally adjusted basis (its 2nd consecutive monthly decline) on both a month-to-month and year-to-year basis. Prices for final demand goods gained 0.2%, its 1st increase since last June. Leading the way was a 1.8% rebound in wholesale energy prices (gasoline PPI: +7.1%). Food PPI fell 0.9%, as wholesale prices of fresh and dry vegetables fell 12.0%. Net of energy and food, final demand PPI inched up 0.1% for the month and was 0.4% above year ago levels. Meanwhile, PPI for final demand services declined 0.2%, as trade PPI (which measures margins of retailers and wholesalers) fell 0.5%.

#5Small business owners grow more pessimistic (again) in March. The Small Business Optimism Index from the National Federation of Independent Business shed 3/10ths of a point to a seasonally adjusted 92.6 (100 = June 1986). This was the measure’s 4th decline over the past 5 months and its lowest reading in 25 months. 6 of the index’s 10 components fell during the month, including drops in the measures for current inventories, current job openings and whether it is a good time to expand. The other 4 index components improved during the month, including a sizable gain in the measure capturing expectations on future economic conditions. The press release was it typical pessimistic self, noting that with recent declines, next month’s survey readings could signal whether the U.S. economy is creeping into a recession.

Other data released over the past week that you might find of interest:
Jobless Claims (week ending April 9, 2016, First-Time Claims, seasonally adjusted): 253,000 (-13,000 vs. previous week; -36,000 vs. the same week a year earlier). 4-week moving average: 263,250 (-5.5% vs. the same week a year earlier).
Import Prices (March 2016): +0.2% vs. February 2016, -6.2% vs. March 2015. Nonfuel prices: -0.1% vs. February 2016, -2.5% vs. March 2015.
Export Prices (March 2016): Unchanged vs. February 2016, -6.1% vs. March 2015. Nonagricultural prices: +0.3% vs. February 2016, -5.6% vs. March 2015.
University of Michigan Index of Consumer Sentiment (April 2016-preliminary, Index 1966 Q1 = 100, seasonally adjusted):  89.7 (March 2016: 91.0, April 2015: 95.9).
Federal Budget  (March 2016, Surplus/Deficit):  -$108.043 billion (+104.2% vs. March 2015) 1st six months of FY2016: -$461.0 billion (+5.0% vs. 1st six months of FY2015).
Beige Book

The opinions expressed here are not necessarily those of Kevin’s current and previous employers. No endorsements are implied.

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