Q1 Expected to Show Moderate to Strong Expansion, False Positives, False Negatives
- University of Michigan Consumer Sentiment sank in April to 72.3 after three months of gains.
- March Retail Sales decreased by 0.4 percent as gasoline prices dropped and other sales were soft.
- Ex-auto Retail Sales also decreased by 0.4 percent with housing-related up, most other categories down.
- The Producer Price Index for Finished Goods dipped by 0.6 percent in March as energy prices fell.
- Excluding food and energy, Core PPI gained 0.2 percent in March, as expected.
- Business Inventories increased by 0.1 percent in February, after a strong 0.9 percent gain in January.
The combination of a weaker-than-expected retail sales report for March and a weaker-than-expected consumer sentiment report for April highlights the concern about consumers’ vulnerability to fiscal tightening. On a quarterly basis, real consumer spending in the first quarter of 2013 is expected to be solid, supported by gains in auto sales. Auto sales, in turn, were strong in the first quarter compared to the fourth quarter of last year because Hurricane Sandy washed out sales last October. Within the first quarter, auto sales were flat at about a 15.2 million unit annual rate. Real GDP growth for the first quarter of 2013 now looks set for an upside surprise north of 3.0 percent. The solid headline GDP number will be supported by quarter-to-quarter gains in consumer spending and by inventory restocking in the aftermath of Hurricane Sandy. As with auto sales within the first quarter, real non-auto consumer spending is also looking flat. Retail sales for March decreased by 0.4 percent as gasoline prices fell. Gasoline station sales dropped 2.2 percent for the month, leading all other categories down. Retail sales of autos and parts dipped by 0.5 percent in March. Housing-related sales increased as furniture sales gained 0.9 percent for the month and building materials increased by 0.1 percent. Other sales categories generally saw small to moderate declines in March. Consumer sentiment fell in April according to the University of Michigan, down a sharp 6.3 to 72.3. However, other measures of consumer sentiment look more stable.
Producer prices rolled back in March with the headline PPI for finished goods declining by 0.6 percent as energy prices eased. The energy index fell by 3.5 percent in March after gaining 3.0 percent in February. Core producer prices (excluding food and energy) gained 0.2 percent for the month, as they did in the previous two months. Business inventories increased 0.1 percent in February after a strong 0.9 percent gain in January. The total business inventory/sales ratio ticked down in February to 1.26 and remains within the bounds of recent expansion cycles.
Market Reaction: Equity markets opened with losses. Treasury yields are down at both ends of the yield curve. NYMEX crude oil is down to $90.97/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