May Retail Sales, Producer Prices, NFIB Survey

Falling Energy Prices Weigh on PPI and Sales, Small Businesses Doing OK

  • Retail Sales for May decreased by 0.2 percent. Ex-auto Retail Sales decreased by 0.4 percent.
  • The May Producer Price Index for Finished Goods fell by 1.0 percent. Core PPI was up 0.2 percent.
  • The National Federation of Independent Business May survey was down slightly to 94.4.

Falling energy prices weighed down retail sales and the producer price index for May. We will see the same effect in tomorrow’s consumer price index for May. Retail sales dipped by 0.2 percent for the month. Ex-auto retail sales were off by 0.4 percent. Surprisingly, motor vehicle retail sales increased by 0.8 percent even though the reported unit sales for May fell from a 14.4 million unit rate in April to 13.8 million in May.  Sales of building materials were weak, dropping by 1.7 percent in May after falling by 2.3 percent in April. This may be the echo of stronger home building and remodeling activity earlier in the year, juiced up by mild winter weather. Sales at gasoline service stations fell by 2.2 percent in May as gasoline prices eased. The national average price for unleaded gasoline fell by 3.8 percent from $3.88/gallon in April to $3.73 in May. Other components of retail sales show no clear up or down pattern. Consumer spending appears to be on track for weak-to-moderate gains in the second quarter. Weak job growth and a mountain of bad economic news from abroad may be weighing on auto sales, but households have aggressively deleveraged, leaving room in the monthly budget for an auto loan. As long as weak hiring does not morph into firing, auto sales are expected to remain close to the 14 million unit mark this summer. Also, lower gasoline prices will help to boost non-gasoline retail sales in the months ahead.

The producer price index for finished goods fell by 1.0 percent in May as the energy price index dropped by 4.3 percent, pulled down by both gasoline and natural gas. The foods sub-index fell by 0.6 percent. Excluding food and energy, core producer prices were up 0.2 percent in May, nudged up by pharmaceuticals. The National Federation of Independent Business’s monthly survey for May showed small business conditions little changed after improving in April. The May index value was down slightly to 94.4. While hiring is anemic, it is noteworthy that employment components of the index did not deteriorate even as payroll job growth slowed to a crawl in May, up just 69,000 for the month.

Main Street America was staggered by an extraordinary loss of wealth from 2007 to 2010 according to a new study by the Federal Reserve.  The average household saw a 15 percent drop in net worth as house prices collapsed and investments evaporated. Despite those losses, consumer confidence has improved through early 2012, auto sales have climbed back and housing markets have leveled out.  Main Street faces more challenges over the next year, not the least of which are the large effective tax increases combined with deep cuts in federal spending now scheduled for early 2013. The story of the U.S. economy over the next four quarters will be largely written on Main Street and the average household’s ability to generate wealth.

Market Reaction: Equity markets opened with losses. Treasury yields are down at the long end. Oil is down to $82.71/barrel. The dollar is down against the yen and the euro.

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