August Retail Sales and PPI, July Business Inventories

Retailers Dodge a Bullet, Sales Unchanged

  • Retail Sales for August were unchanged despite reports of swooning consumer confidence.
  • Ex-auto Retail Sales increased by 0.1 percent. Auto retail sales dipped by 0.3 percent.
  • The Producer Price Index for August was unchanged as the energy price index fell by 1.0 percent.
  • The core Producer Price Index (less food and energy) increased by 0.1 percent.
  • Business Inventories increased by 0.7 percent, supported by auto makers.

August Retail sales were unchanged even as consumer confidence fell back to recessionary levels. Most major sales categories showed moderate gains, but lower sales at auto dealers and clothing stores held the total down. As previously reported, unit auto sales for August showed a small drop from 12.2 million units in July to 12.1 million units. In today’s report, dollar sales at auto dealers slipped by 0.3 percent. Ex-auto retail sales ticked up slightly by 0.1 percent. Furniture store sales dipped by 0.2 percent; not surprising given weak home sales over the summer. Building materials gained 0.2 percent. We should see a boost in September to building materials sales as a result of Hurricane Irene and other storms. Clothing store sales dipped by 0.7 percent, perhaps in response to strong price increases. Electronics and appliance stores increased sales by 0.5 percent. Overall, it is a benign report, still in line with our expectation of 1.7 percent real personal consumption expenditure growth in 2011Q3 and supportive of a moderate gains to Q3 real GDP.

The Producer Price Index for finished goods was unchanged in August. Core producer prices gained just 0.1 percent as tire prices were pumped up. A spike in rubber costs, unswerving global demand for car tires, plus blow-out demand for mining equipment tires is inflating tire prices worldwide. No flats are expected in September. Passenger car prices dipped by 0.4 percent, noteworthy after a string of increases. Food prices gained 1.1 percent due to higher meat prices. Energy prices fell by 1.0 percent, the third straight monthly decline. Over the past 12 months the Producer Price Index is up 6.5 percent. Business inventories gained 0.7 percent in July as manufacturing inventories gained 1.6 percent. The July rebound in auto production is also supportive of Q3 GDP.

Market Reaction: Equity markets opened positively but have settled. Treasury yields are up at the long end. Oil is down to $89.35/barrel. The dollar is giving ground against the yen and the euro.

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