March Retail Sales, February Inventories

Shoppers Forge Ahead, Warmed by Early Spring

  • Retail Sales for March increased by 0.8 percent. Ex-auto Retail Sales also increased by 0.8 percent.
  • Retail Sales of motor vehicles and parts gained 0.9 percent, even as reported unit sales decreased.
  • Business Inventories were up 0.6 percent in February; the inventory/sales ratio was stable at 1.28.

Weather was a positive factor for first quarter economic data. An early spring brought shoppers out of their burrows boosting March retail sales beyond consensus expectations. In the near-term, weather-related gains to monthly data tend to precede disappointing corrections later, as may have happened with the weak March employment data. However, over the long term, weather related gains may have some enduring benefit at this point in the economic cycle. When pent-up demand begins to be unleashed, after four years of defensive behavior, the economy does not represent a zero sum game. Gains in one metric, such as retail sales, tend to beget net gains in other metrics. So, while a correction in retail sales may be on the way in April or May, after a stronger than expected March, the positive feedback loop of a self-sustaining expansion is getting a little help by favorable weather.

Total retail sales for March increased by 0.8 percent, above consensus expectations of about 0.4 percent growth. Gains were broad-based, including a 1.1 percent increase in auto dealer sales despite the reported decline in unit auto sales from a 15.0 million unit rate in February to a 14.3 million unit rate in March. Ex-auto retail sales also gained 0.8 percent in March. Furniture sales were up 1.1 percent and electronics gained 1.0 percent. Building material sales were up 3.0 percent in what appears to a weather-related gain. Gasoline station sales were up 1.1 percent as gasoline prices peaked near $3.95 per gallon for regular unleaded. Clothing stores increased sales by 0.9 percent.

Business inventories increased by 0.6 percent in February, keeping pace with manufacturing and trade sales. Inventories will not add as much to 2012Q1 GDP as they did in 2011Q4. According to the April Empire State Manufacturing Survey, manufacturing conditions in the New York area are still favorable, but growth was not as strong as it was in March. The general business conditions index declined to 6.6 in April.

Market Reaction: Equity markets opened with gains that quickly evaporated. Treasury yields are down at the long end. Oil is down to $102.67/barrel. The dollar is down against the yen and up versus the euro.

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