Mixed Data at Year-End 2012 Suggests Tentative Growth
- December Retail Sales increased by 0.5 percent, boosted by autos, held back by gasoline.
- Ex-auto Retail Sales gained 0.3 percent as furniture sales increased by 1.4 percent.
- The Producer Price Index for December dropped by 0.2 percent as food and energy prices fell.
- Business inventories increased by 0.3 percent in November as business sales gained 1.0 percent.
As data for the fourth quarter of 2012 rolls in we are seeing evidence of an economy that can be described as tentative but not stalled. December retail sales gained 0.5 percent as motor vehicle and parts dealers reported a solid 1.6 percent increase, even though unit auto sales fell slightly to a 15.3 million unit rate in December. Furniture sales were also strong, gaining 1.4 percent for the month, the same as sales at health and personal care stores. Electronics sales fell by 0.6 percent. Lower gasoline prices pulled service station sales down by 1.6 percent. On a year-over-year basis December retail sales were up a moderate 4.7 percent. A key question is how do shoppers feel right now, after taxes have been increased and more fiscal drag is likely to come from federal spending cuts. Layered on top of the expected drag from fiscal tightening may be some give back from recently elevated auto sales. Unit auto sales stepped up from a washed out 14.2 million unit rate in October to 15.5 in November, then eased to 15.3 in December. January and February auto sales could be weaker still. Our estimate for growth in first quarter real personal consumption expenditures is a weak but positive 0.9 percent. This assumes that consumers will feel some support from the positive wealth effect of increasing home prices and increasing equity prices. They will feel comfortable utilizing credit and they may pull down their saving rate to grow spending slightly despite a dip in real disposable income. We used to say never underestimate the ability of the American consumer to continue to shop in the face of adversity. We will soon see if those days are coming back.
Inflation was not an issue at the end of 2012. The producer price index for finished goods fell by 0.2 percent in December as the energy price index dropped by 0.3 percent and the food price index fell by 0.9 percent. The core producer price index for finished goods increased by 0.1 percent in December, the same as November. On a year-over-year basis the finished goods PPI was up a tame 1.3 percent in December. Business inventories gained 0.3 percent in November, about the same as October. We may end up getting more GDP support from inventory accumulation in the fourth quarter than expected. The Empire State Manufacturing Survey for January showed ongoing deteriorating conditions in the New York region. Recent weakness in this regional survey has not been reflected in the positive U.S. numbers reported by the ISM Manufacturing Survey.
Market Reaction: Equity markets opened with losses. Treasury yields are down at both ends of the yield curve. NYMEX crude oil is down to $93.88/barrel. The dollar is down against the yen and up versus the euro.
Click here for a PDF version of the Comerica Economic Alert: Retail Sales 011513.