Softening Spending and Inflation: April 10 – 14

Inflation and retail sales softened in March. Here are the five things we learned from U.S. economic data released during the week ending April 14.

Retail sales plummeted in March. Retail and food services sales slumped 1.0 percent to a seasonally adjusted $691.7 billion. This followed a 0.2 percent drop for the Census Bureau data series in February, leaving sales up 2.9 percent from a year earlier. A part of March’s decline was due to falling sales at gas stations (down 5.5 percent as prices at the pump tumbled) and motor vehicle dealers/parts stores (-1.6 percent). Net of both, core retail sales dropped 0.3 percent in March but were up 6.0 percent from a year earlier. Sales fell in March at retailers focused on general merchandise (-3.0 percent), electronics/appliances (-2.1 percent), apparel (-1.7 percent), and furniture (-1.2 percent). Enjoying sales increases were health/personal care stores (+0.3 percent), sporting goods/hobby retailers (+0.2 percent), and restaurants/bars (+0.1 percent). 

Consumer inflation mellowed in March. The Consumer Price Index (CPI) grew a seasonally adjusted 0.1 percent, its smallest increase since December. The Bureau of Labor Statistics measure has risen 5.0 percent over the past year, the smallest 12-month increase since June 2021. Keep the headline figure in check was the 3.5 percent drop in energy CPI (gasoline: -4.6 percent) and steady food prices. Net of energy and food, core CPI rose 0.4 percent for the third time in four months (in February, it jumped 0.5 percent), with the measure up 5.6 percent over the past year. Growing were prices for transportation services (+1.4 percent), shelter (+0.6 percent), medical care commodities (+0.6 percent), new vehicles (+0.4 percent), and apparel (+0.3 percent). Prices dropped for used cars/trucks (-0.9 percent) and medical services (-0.5 percent). 

Wholesale prices fell in March. The Bureau of Labor Statistics reports that the Producer Price Index (PPI) for final demand declined by 0.5 percent on a seasonally adjusted basis after holding steady in February. The core wholesale price measure, which nets out energy, food, and trade services, eked out a nominal 0.1 percent advance. Energy PPI plummeted 6.4 percent (gasoline: -11.7 percent), while food PPI rose 0.6 percent (eggs: +33.9 percent). Core goods PPI was up 0.3 percent, matching its February advance. PPI for final demand has risen 2.7 percent over the past year, down sharply from recent trends (e.g., March 2022: +11.7 percent), while the core wholesale price measure has increased 3.6 percent over the same period.

Manufacturing output declined in March. The Federal Reserve estimates manufacturing production declined a seasonally adjusted 0.5 percent, following gains of 1.5 percent and 0.6 percent in January and February, respectively. Falling was the production of both durable (-0.9 percent) and nondurable (-0.1 percent) goods. Overall industrial production rose 0.4 percent, thanks mainly to an 8.4 percent surge in utilities output (thanks to higher demand for heating). Mining output fell for the fourth time in five months (-0.5 percent). Relative to a year ago, manufacturing production was off 1.1 percent, while industrial production was up a measly 0.4 percent. 

Consumer sentiment held steady in early April. The University of Michigan’s Index of Consumer Sentiment added 1.5 points to a seasonally adjusted 63.5 (1966Q1=100). A year earlier, the index was at 65.2. The current conditions index added 2.3 points to 68.6 (April 2022: 69.4), while the expectations index grew by 1.1 points to 60.3 (April 2022: 62.5). Also rising, however, were inflation expectations, with anticipated one-year price increases growing a whole percentage point to +4.6 percent. Long-term anticipated inflation held steady at +2.9 percent. 

Other U.S. economic data released over the past week:

• Jobless Claims (Week ending April 8, 2023, First-Time Claims, seasonally adjusted): 239,000, +11,000 vs. the previous week, -17,000 vs. the same week a year earlier). 4-week moving average: 240,000 (+11.1% vs. the same week a year earlier). 
• Import Prices (March 2023, All Imports, not seasonally adjusted): -0.6% vs. February 2023; -4.6% vs. March 2022. Nonfuel Imports: -0.5% vs. February 2023; -1.5% vs. March 2022.
• Export Prices (March 2023, All Exports, not seasonally adjusted): -0.3% vs. February 2023; -4.8% vs. March 2022. Nonagricultural Exports: -0.2% vs. February 2023; -5.2% vs. March 2022.
• Small Business Optimism (March 2023, Index (1986=100), seasonally adjusted): 90.1 (vs. February 2023: 90.9; vs. March 2022: 93.2). 
• Business Inventories (February 2023, Manufacturers’ and Trade Inventories, seasonally adjusted): $2.472 trillion (+0.2% vs. January 2023; +9.1% vs. February 2022). 
• Wholesale Inventories (March 2023, Merchant Wholesalers’ Inventories, seasonally adjusted): $919.2 billion (+0.1% vs. February 2023; +12.0% vs. March 2022).
• Monthly Treasury Statement (March 2023, Federal Budget Deficit): -$1.101 trillion over the first six months of FY23, +64.7% vs. the first six months of FY22.
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