Retail Sales & Manufacturing Chilled in January: February 12 – 16

Retail sales and manufacturing output paused in January. Here are the five things we learned from U.S. economic data released during the week ending February 16.

#1A drop in auto sales pulled down retail activity in January. The Census Bureau indicates that retail and food services sales were at $492.0 billion during the month, down 0.3 percent from the prior month but still 3.6 percent above that of a year earlier. Some of the drop reflects a sharp 1.3 percent slowdown in sales at auto dealers and parts stores. Net of that, retail sales were unchanged for the month and paced 4.2 percent ahead of the year earlier. Sales grew during the month at gas stations (+1.6 percent, thanks to higher prices at the pump), apparel retailers (+1.2 percent), department stores (+0.8 percent), and electronics/appliance retailers (+0.5 percent). Sales slowed at retailers focused on building materials (-2.4 percent), health/personal care (-1.2 percent), sporting goods/hobbies (-0.8 percent), and furniture (-0.4 percent). Nonstore retailers (including internet retailers) also had a soft month with sales only matching that of December—nevertheless, nonstore retailer activity was 10.2 percent ahead of their January 2017 pace.Retail sales Jan18 Dec 17 021618.png

#2Manufacturing output did not budge for a second straight month. The Federal Reserve estimates manufacturing sector output was unchanged during January, following a similarly flat month in November. Production of durable goods edged up 0.2 percent during the month while nondurable goods output matched that of December. Overall industrial production slowed 0.1 percent during the month after having risen 0.4 percent during December. Mining production dropped for a second straight month (-1.0 percent) while output at utilities gained 0.6 percent. Versus a year earlier, industrial production has grown 3.7 percent while manufacturing sector output was up a more modest 1.8 percent. Factories continued to be somewhat underutilized—capacity utilization in the manufacturing sector held firm for the month at 76.2 percent, up 1.2 percent from a year earlier but two percentage points below its long-run average. Capacity utilization for all industrial production dropped by 2/10ths of a percentage point to 77.5 percent. Nonetheless, this was a 1.2 percent increase from a year earlier.

#3Inflation took a greater hold in January. The Consumer Price Index (CPI) surged 0.5 percent on a seasonally adjusted basis, the biggest single-month gain for the Bureau of Labor Statistics’ measure since last September. A part of the increase was the result of higher prices for both fuel oil (+9.5 percent) and gasoline (+5.7 percent) that led to a 3.0 percent jump in energy CPI. Food prices grew at a more modest 0.2 percent. Net of energy and food, core CPI jumped 0.3 percent for the month. Apparel prices swelled 1.7 percent (its biggest increase since 1990(!) while those for transportation (+0.8 percent) and medical care (+0.6 percent) services also had large gains. Rising more modestly were prices for used cars (+0.4 percent) and shelter (+0.2 percent) while prices slipped 0.1 percent for both new vehicles and medical care commodities. CPI has risen 2.1 percent over the past year while the core measure remained just under the Federal Reserve’s two-percent target rate at +1.8 percent.

The Producer Price Index (PPI) for final demand bounced 0.4 percent on a seasonally adjusted basis during January, after being unchanged in December and gaining 0.4 percent in November. The index’s core measure (which removes the impact of energy, food, and trade services) also swelled 0.4 percent, which was the core measure’s largest increase since last April. PPI for final demand goods jumped 0.7 percent, which included a 3.4 percent rise in energy PPI (wholesale gasoline prices rose 7.1 percent). Wholesale food prices slumped 0.4 percent, pulled down by falling prices eggs (-38.9 percent). Net of energy and food, final demand goods PPI increased 0.2 percent (down from 0.3 percent gains in both last November and December). PPI for final demand services grew 0.3 percent. Over the past year, PPI has risen 2.7 percent while the core measure of wholesale prices has increased 2.5 percent over the same 12 months.

#4Housing starts jumped in January, with data suggesting further gains this year. The Census Bureau reports that housing starts increased 9.7 percent during the month to a seasonally adjusted annualized rate (SAAR) of 1.326 million units. This was 7.3 percent ahead of the year-ago rate and its highest point since October 2016. Single-family home units started at a slower pace (+3.6 percent) than had multi-family home units (+19.7 percent). Looking towards the future, the number of issued building permits surged 7.4 percent on both a month-to-month and year-to-year basis to 1.396 million permits (SAAR), its highest point since June 2007. Builders completed 1.166 million homes (SAAR) during January. While this was off 1.9 percent from that of December 2017, it represented a 7.7 percent improvement from a year earlier.

#5Small business owners start 2018 more optimistic. The Small Business Optimism Index, from the National Federation of Independent Business, added two full points during January to a seasonally adjusted 106.9. This was up a full point from a year earlier and “one of the strongest readings” for the measure in its 45-year history. Six of the ten index’s components improved from their December 2017 marks, led by earnings trends (up 11 points), whether it is a good time to expand (up five points), expected economic conditions (up four points), and plans to increase inventories (up four points). Slipping by three points were measures for expected real sales and current inventories. The press release notes that “small business owners have never been more positive about the economy.” 

Other U.S. economic data released over the past week:
Jobless Claims (week ending February 10, 2018, First-Time Claims, seasonally adjusted): 230,000 (7,000 vs. previous week; -18,000 vs. the same week a year earlier). 4-week moving average: 228,500 (-7.4% vs. the same week a year earlier).
Import Prices (January 2018, All Imports, not seasonally adjusted): +1.0% vs. December 2017, +3.6% vs. January 2017. Nonfuel Imports: +0.4% vs. December 2017, +1.9% vs. January 2017.
Export Prices (January 2018, All Exports, not seasonally adjusted): +0.8% vs. December 2017, +3.4% vs. January 2017. Nonagricultural Exports: +0.9% vs. December 2017, +3.7% vs. January 2017.
Housing Market Index (February 2018, Index (>50 = “Good” housing market), seasonally adjusted): 72 (vs. January 2018: 72, vs. February 2017: 67).
Monthly Treasury Statement (January 2018, Budget Surplus/Deficit): +$49.2 Billion (vs. December 2017: -$23.2 billion, January 2017: +$51.3 billion). 1st Four Months of FY2018: -$175.7 billion (+10.8% vs. 1st four months of FY2017).
Business Inventories (December 2017, Manufacturers’ and Trade Inventories, seasonally adjusted): $1.902 trillion (+$7.1 billion vs. November 2017, +3.2% vs. December 2016).
University of Michigan Index of Consumer Sentiment (February 2018-preliminary, Index (1966Q1=100, seasonally adjusted): 99.9 (vs. January 2018: 95.7, vs. February 2017: 96.3).
Treasury International Capital (December 2017, Net Domestic U.S. Securities Purchases by Foreign Investors, not seasonally adjusted): +$34.2 billion (vs. November 2017: +$34.8 billion, vs. December 2016: -$13.1 billion).

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

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