Retail Sales and Inflation Both Take a Summer Break: July 10 – 14

The summer has not been sizzling (so far) for retailers while inflation takes June off for vacation. Here are the five things we learned from U.S. economic data released during the week ending July 14. 

#1June was another weak month for retail sales. The Census Bureau estimates retail sales were at $473.5 billion during the month, down 0.2 percent from May and up a moderate 2.8 percent from a year earlier. After removing data at auto dealers/parts stores (which inched up 0.1 percent) from the analysis, core retail sales also fell 0.2 percent for the month and were up an even more tepid 2.4 percent. June’s sales decline follows a 0.1 percent drop in May. Sales improved at building materials retailers (+0.5 percent), general merchandisers (+0.4 percent), health/personal care stores (+0.3 percent), electronics/appliance retailers (+0.1 percent), and furniture stores (+0.1 percent). Sales weakened at gas stations (-1.3 percent, largely due to lower gas prices), department stores (-0.7 percent), sporting goods/hobby retailers (-0.6 percent), restaurants/bars (-0.6 percent), and grocery stores (-0.5 percent). Sales gains were also modest at what has been the hot spot in recent years for retail: nonstore (i.e., web) retailers, where sales grew “only” 0.4 percent during June. Sales at nonstore retailers nevertheless still have grown 9.2 percent over the past year.Retail Sales June 17-071717

#2One reason for the weak retail data may be the lack of inflation. The Bureau of Labor Statistics’ Consumer Price Index (CPI) was unchanged in June, following 0.1 percent slip during May. Energy prices slumped for the fourth time in five months with a 1.6 percent drop as gasoline prices fell 2.7 percent. Food prices held steady during the month. Net of energy and food goods, core CPI inched up 0.1 percent for the third consecutive month. Growing during the month were prices for medical care commodities (+0.7 percent), medical care services (+0.3 percent), shelter (+0.2 percent), and transportation services (+0.2 percent). Prices declined for both new and used vehicles (-0.3 percent and -0.7 percent, respectively) and for apparel (-0.1 percent). Over the past year, CPI has grown 1.6 percent while the 12-month comparable for core CPI was +1.7 percent.

The Producer Price Index (PPI) for final demand eked out a 0.1 percent increase during June after having held steady in May. The core measure—final demand PPI less energy, food, and trade service—gained 0.2 percent. Wholesale prices for energy dropped 0.5 percent as final demand gasoline PPI fell 1.1 percent. Food PPI jumped 0.6 percent (its biggest gain since February), led by a 5.5 percent bump in the wholesale price of meats. Net of energy and food, core final demand core producer prices gained 0.1 percent during June. Prices for final demand services increased 0.2 percent, its smallest increase since February. The 12-month comparables for both headline final demand PPI and core final demand PPI were +2.0 percent.

#3Manufacturing enjoyed a soft rebound in June. The Federal Reserve estimates manufacturing output grew 0.2 percent during the month following a 0.4 percent decline in May. Manufacturing output has increased 1.2 percent over the past year. Production of durable goods gained 0.4 percent while that of nondurables held firm with their May readings. All the key categories of durable goods enjoyed production gains during June while the bright spot for nondurables was rubber/plastic products. Overall industrial production increased 0.4 percent during June following a 0.1 percent increase in May and was 2.0 percent above its June 2016 level. Mining output jumped 1.6 percent during the month (with gains in oil/gas extraction, coal mining, and drilling/support activities) while utilities’ output was unchanged (higher electric utility production counterbalanced a drop at gas utilities).

#4The number of job openings shrank, but the number of people hired blossomed in May. Per the Bureau of Labor Statistics, there were a seasonally adjusted 5.666 million job openings at the end of May. While this was down 301,000 from April, it remained 1.5 percent above the year ago count and was still near its post-recession high. Some of the sharpest month-to-month declines in job openings were professional/business services, financial activities, health care/social assistance, transportation/warehousing, and construction. On the positive side, there were 5.472 million people hired during May, up 429,000 from April and 6.2 percent from the May 2016 pace. Industries reporting the largest year-to-year percentage increases in hiring were manufacturing, construction, financial activities, and transportation/warehousing. Finally, the count of job separations grew by 251,000 during the month to 5.259 million (+3.1 percent versus May 2016). The number of people voluntarily leaving their jobs—3.221 million—was up +7.2 percent from a year earlier, suggesting workers’ success in finding new jobs. The count of layoffs—1.661 million—was 4.6 percent below that of May 2016.

#5Small business owners’ optimism slipped again in June. The Small Business Optimism Index lost 9/10ths of a point during the month to a seasonally adjusted reading of 103.6 (1986=100), its fourth drop in five months. Even with the downward trend, the National Federation of Independent Business measure has maintained much of the surge it experienced following last November’s election and was still 9.1 points above its year ago reading. Pulling down the index were declining readings of index components tracking expectations for the economy (down six points), expected real sales (down five points), current job openings (down four points), plans to increase employment (down three points), and whether it is a good time to expand (down two points). Four of the index’s ten components improved during the month: current inventories (up three points), plans to increase inventories (up three points), plans to make capital outlays (up two points), and expectations for credit conditions (up a point). The press release said the index’s decline was “no doubt in part due to the mess in Washington, D.C.”

Other U.S. economic data released over the past week:
Jobless Claims (week ending July 8, 2017, First-Time Claims, seasonally adjusted): 247,000 (-3,000 vs. previous week; -7,000 vs. the same week a year earlier). 4-week moving average: 245,750 (-5.7% vs. the same week a year earlier).
Business Inventories (May 2017, Manufacturing and Trade Inventories, seasonally adjusted): $1.860 trillion (+0.3% vs. April 2017, +2.4% vs. May 2016).
Consumer Credit (May 2017, Outstanding Balances of Non-Real Estate Backed Loans, seasonally adjusted): $3.843 trillion (+$18.4 billion vs. April 2017, +5.8% vs. May 2016).
Treasury Budget (June 2017, Surplus/Deficit): -$90.2 billion (vs. May 2017: -$88.4 billion; vs. June 2016: +$6.3 billion). For the first 9 months of FY2017: -$523.1 billion (+31.0% vs. first 9 months of FY2016).
Beige Book
University of Michigan Consumer Sentiment (July 2017-preliminary, Index of Consumer Sentiment, seasonally adjusted): 93.1 (vs. June 2017: 95.1, vs. July 2016: 90.0).

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

The Fed Moves, Inflation Does Not: June 12 – 16

The Federal Reserve raised short-term interest rates even though inflation remains below where the Fed wants it to be. Here are the 5 things we learned from U.S. economic data released during the week ending June 16.

#1The Federal Reserve bumped up its short-term interest rate target for the second time in 2017. The policy statement released following the conclusion of last week’s meeting of the Federal Open Market Committee (FMOC) reaffirmed its view that the economy was “rising moderately,” the labor market had “continued to strengthen,” and that risks to economic growth were “balanced.” At the same time, it noted that inflation had “declined recently” and was tracking below the Fed’s two-percent target rate. Nevertheless, the FOMC voted (with one dissension) to raise the fed funds target rate by 25-basis points to a range of +1.00 percent and +1.25 percent, a level that the statement noted was still “accommodative” and would promote “further strengthening in the labor market.” The FOMC also agreed to gradually begin reducing the central bank’s holdings of Treasury securities and agency mortgage-back securities by slowing its reinvestment of the principal payments that it receives on these holdings.

The Fed also released updated economic forecasts from FOMC meeting participants. The group continues to expect modest economic growth over the coming years with median forecasts for annual GDP growth at +2.2 percent, +2.1 percent, and +1.9 percent for 2017, 2018, and 2019 respectively. At the same time, they now anticipate low unemployment rates of 4.3 percent this year and 4.2 percent in both 2018 and 2019. The group also expects the core personal consumption expenditures (PCE) deflator, a measure of inflation, to be at +1.7 percent for this year before creeping up to +2.0 percent during both 2018 and 2019. Finally, the FOMC meeting participants predict one more hike in the fed funds target rate this year and then three hikes per year in both 2018 and 2019.FOMC Fed Funds Target Forecasts--061617

 #2Inflation took the month of May off. The Bureau of Labor Statistics reports that the Consumer Price Index (CPI) slipped 0.1 percent on a seasonally adjusted basis during the month, leaving it 1.9 percent above its May 2016 reading. The decline was partially the result of a pullback in gasoline prices (-6.4 percent) that weighed on the energy price index -2.7 percent. Meanwhile, food CPI grew 0.2 percent during the month. Net of both energy and food, core CPI eked out a 0.1 percent increase, giving it a 12-month comparable of +1.7 percent. Rising during the month were prices for medical care commodities (+0.4 percent), transportation services (+0.3 percent), and shelter (+0.2 percent). Prices fell for apparel (-0.8 percent), both new and used vehicles (-0.2 percent), and medical care services (-0.1 percent).

Falling wholesale gasoline prices also kept wholesale prices in check during May. Final demand Producer Price Index (PPI) held steady during the month but was still up 2.4 percent from a year earlier. The core measure of final demand wholesale prices (net of energy, food, and trade services) declined 0.1 percent for the month and had a 12-month comparable of +2.1 percent. PPI of final demand goods dropped 0.2 percent as wholesale price declines for energy (-3.0 percent) and food (-0.2 percent) outweighed the 0.1 percent increase in prices for core goods. PPI for final demand services grew 0.3 percent during May as the price index for trade services (i.e., retailer and wholesaler margins) jumped 1.1 percent.

#3Manufacturing output fell in May. The Federal Reserve’s report on industrial production finds manufacturing output declining 0.4 percent on a seasonally adjusted basis during the month following a 1.1 percent gain in April. This left manufacturing output growing by an unexceptional 1.4 percent from a year earlier. Durable goods production slumped 0.8 percent during May, with declines across all major product categories, while nondurables output gained 0.3 percent, led by a “large gain” in the production of chemicals. Overall industrial production was unchanged for the month as a drop in manufacturing output was counterbalanced by production gains in mining (+1.6 percent) and at utilities (+0.4 percent)

#4Retail sales sputtered in May. Per the Census Bureau, retail sales declined 0.3 percent during the month to a seasonally adjusted $473.8 billion. Nevertheless, sales paced 3.8 percent ahead of their year-ago level. Sales net of those at auto dealers & parts stores (-0.2 percent vs. April 2017) shared the same comparbles of -0.3 percent vs. April 2017 and +3.8 percent vs. May 2016. Some of the decline in retail sales during May was the result of lower gasoline prices that had pushed down sales at gas stations 2.8 percent (this data series does not adjust for price changes). Sales also fell at electronic stores (-2.8 percent), department stores (-1.0 percent), sporting goods/hobby retailers (-0.6 percent), and restaurants/bars (-0.1 percent). Having a better month were furniture stores (+0.4 percent), apparel retailers (+0.3 percent), and grocery stores (+0.1 percent). Consumers continued to shift away from brick and mortar stores to online retailers as sales at nonstore retailers jumped 0.8 percent during the month and were 10.2 percent ahead of their May 2016 pace.

#5Employers expect to expand payrolls during Q3. Twenty-four percent of the more than 11,000 employers Manpower interviewed intend to expand payrolls during the three-month period of July, August, and September, while four percent expect to shed workers. Taking the difference of +20 and adjusting for seasonal variation gives you the Manpower Net Employment Outlook Index of +17, which was unchanged from the second quarter forecast and up two points from the same quarter a year earlier. The index was positive in all 13 industries tracked, with the highest outlook index reading coming in for leisure/hospitality (+25), transportation/utilities (+22), and wholesale/retail trade (+21). The press release said that “[e]mployers across the country are optimistic but don’t want to get ahead of themselves.”

Other U.S. economic data released over the past week:
Jobless Claims (week ending June 10, 2017, First-Time Claims, seasonally adjusted): 237,000 -8,000 vs. previous week; -36,000 vs. the same week a year earlier). 4-week moving average: 243,000 (-9.5% vs. the same week a year earlier).
Import Prices (May 2017, All Imports, not seasonally adjusted): -0.3% vs. April 2017, +2.1% vs. May 2016. Nonfuel imports: unchanged vs. April 2017, +0.8% vs. May 2016).
Export Prices (May 2017, All Exports, not seasonally adjusted: -0.7% vs. April 2017, +1.4% vs. May 2016.
Housing Starts (April 2017, Housing Starts, seasonally adjusted annualized rate): 1.172 million (-2.6% vs. March 2017, +5.7% vs. April 2016).
Housing Market Index (June 2017, Index (>50 = “Good” Housing Market, seasonally adjusted): 67 (vs. May 2017: 69, vs. June 2016: 60).
University of Michigan Consumer Sentiment (June 2017-preliminary, Index of Consumer Sentiment (1966Q1 = 100), seasonally adjusted): 94.5 (vs. May 2017: 97.1, June 2016: 93.5).
Regional & State Employment (May 2017, States with Significant Changes in Nonfarm Payrolls Vs. Previous Month, seasonally adjusted): Increased in 9 states and the District of Columbia and decreased in 4 states. Vs. May 2016: Increased in 28 states and no states suffered significant declines.
Business Inventories (April 2017, Manufacturing & Trade Inventories, seasonally adjusted): $1.854 trillion (-0.2% vs. March 2017, +2.3% vs. April 2016).

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

Retail Gains (for Some), Inflation Rebounds: May 8 – 12

Retail sales increased during April, although not all retailers benefited from increased consumer spending. Meanwhile, inflation rebounded during April after having taken March off. Here are the 5 things we learned from U.S. economic data released during the week ending May 12.

#1On the whole, retail sales grew during April, but not all sectors shared in the gain. The Census Bureau places its estimate of April sales for retail and food services at a seasonally adjusted $474.9 billion, up 0.4 percent from March and 4.8 percent from a year earlier. (The Census Bureau also raised its previously released estimate of March retail sales from a 0.2 percent decrease to a 0.1 percent gain.) Some of the gains came from a rebound in sales at auto dealers (and parts retailers) with a 0.7 percent sales increase. Net of activity at auto dealers, retail sales increased 0.3 percent during April and were up 4.5 percent over the past year. Sales grew at retailers focused on electronics/appliances (+1.3 percent), building materials/garden (+1.2 percent), personal care (+0.8 percent), and sporting goods/hobbies (+0.6 percent). Sales also improved at restaurants/bars (+0.4%). And, reflecting the continuing shift of sales away from traditional brick and mortar stores, sales at nonstore retailers (e.g., web retailers) jumped 1.4 percent during April and were 11.9 percent above their April 2016 rate. Sales weakened 0.5 percent at furniture retailers, 0.5 percent at apparel retailers, and 0.4 percent at grocery stores. Reflecting the shift above in consumer preferences, sales also fell 0.5 percent at general merchandise retailers, although sales did gain 0.2 percent at non-luxury department stores. Sales were 0.7 percent below those a year earlier at general merchandisers with the 12-month comparable at non-luxury department stores at -3.7 percent. Other retail segments with weak year-to-year sales comparables included sporting goods/hobbies (-2.4 percent), apparel (+0.5 percent), and electronics/appliances (+0.7 percent).Change in Retail Sales-April 2017-051217

#2Energy and food price pulled up consumer prices during April. The Bureau of Labor Statistics reports that the Consumer Price Index (CPI) gained 0.2 percent on a seasonally adjusted basis during the month and was 2.2 percent above its year-ago mark. Energy prices rose 1.1 percent during April as gasoline prices jumped 1.2 percent (also rise were the price indices for utility delivered natural gas (+2.2 percent), energy services (+0.9 percent), and electricity (+0.6 percent). Energy CPI has risen 9.3 percent over the past year. Food CPI gained 0.2 percent during the month but only by 0.5 percent since April 2016. Core CPI, which removes both energy and food goods from the analysis, inched up 0.1 percent during the month and was 1.9 percent above where it was a year ago. While shelter prices grew 0.3 percent during April, falling were prices for medical care commodities (-0.8 percent), used vehicles (-0.5 percent), apparel (-0.3 percent), new vehicles (-0.2 percent), and transportation services (-0.2 percent).

#3Wholesale prices rebounded in April after slipping in March. The Producer Price Index (PPI) for final demand jumped 0.5 percent on a seasonally adjusted during April after having declined 0.1 percent during the previous month. The Bureau of Labor Statistics’ measure has increased 2.5 percent over the past year, its largest 12-month comparable since February 2012. The rise in PPI was widespread. The core measure for wholesale prices—final demand PPI net of energy, food, and trade services—jumped 0.7 percent during April and was has grown 2.1 percent over the past year. PPI for final demand goods grew a robust 0.5 percent, which included strong gains in wholesale energy and food prices of 0.8 percent, and 0.9 percent, respectively. Net of energy and food, core goods producer prices increased 0.3 percent, the fifth time over the past six months in which that measure had grown by at least that amount. PPI for final demand services grew 0.4 percent during the month, pulled up by higher prices for financial services, guestroom rentals, and transportation and warehousing services.

#4The number of job openings grew during March, but the pace of hiring held firm. The Bureau of Labor Statistics estimates nonfarm employers hired 5.260 million people on a seasonally adjusted basis during the month, up 11,000 from February but off 37,000 from a year earlier. Private sector employers hired 4.928 million workers during March, up 23,000 from February and 8,000 from March 2016. Industries with the largest year-to-year percentage increases in hiring were manufacturing (+22.9 percent), transportation (+10.2 percent), and health care/social assistance (+8.9 percent). Meanwhile, the count of people hired by retailers was off 3.2 percent from the same month a year earlier. The slow growth in hiring happened even as the count of job openings grew by 61,000 during March to a seasonally adjusted 5.743 million. (-1.9 percent versus March 2016). Private sector job openings totaled 5.207 million, 2.5 percent below March 2016 levels. Industries with the largest year-to-year percentage increases in job openings include manufacturing (+15.2 percent), health care/social assistance (+10.4 percent), financial activities (+7.7 percent), and wholesale trade (+3.4 percent). 5.088 million people left their job during March, up 80,000 from February and 1.0 percent from a year earlier. While layoffs edge up by 21,000 during the month to 1.615 million, this remained 6.4% below that of a year earlier. The voluntary quits figure of 3.036 million people was down 150,000 from February but still 3.5 percent above that of a year earlier.

#5A change in business tax payment deadlines leads to a larger budget surplus in April. Per the Bureau of the Fiscal Service, the U.S. government ran a budget surplus of $182.4 billion. This compares to a deficit of $172.2 billion during the previous month and a $33.4 billion surplus during the same month a year earlier. The significantly larger deficit is largely the result of a change in rules that shifted the due date for corporate tax payments from March to April. Receipts totaled $455.6 billion (up 16.3 percent from April 2016) while expenditures dropped 18.0 percent. The U.S. government ran a budget deficit of $344.4 billion during the first seven months of FY2017, 2.4 percent smaler than the deficit incurred during the same seven months of FY2016.

Other U.S. economic data released over the past week:
Jobless Claims (week ending May 6, 2017, First-Time Claims, seasonally adjusted): 236,000 (-2,000 vs. previous week; -50,000 vs. the same week a year earlier). 4-week moving average: 243,500 (-9.8% vs. the same week a year earlier).
University of Michigan Index of Consumer Sentiment (May 2017-preliminary, Index (1966Q1=100), seasonally adjusted): 97.7 (vs. April 2017: 97.0, vs. May 2017: 94.7).
Import Prices (April 2017, not seasonally adjusted): +0.5% vs. March 2017, +4.1% vs. April 2016. Nonfuel imports: +0.3% vs. March 2017, +1.1% vs. April 2016.
Export Prices (April 2017, not seasonally adjusted): +0.2% vs. March 2017, +3.0% vs. April 2016. Nonagricultural exports: +0.1% vs. March 2017, +2.9% vs. April 2016.
Small Business Optimism Survey (April 2017, Index (1986=100), seasonally adjusted): 104.5 (vs. March 2017: 104.7, April 2016: 93.6).
Manufacturing and Trade Inventories (March 2016, Business Inventories, seasonally adjusted): $1.841 trillion (+0.2% vs. February 2017, +2.6% vs. March 2016).

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