Cars Drive Sales, Wholesale Prices Lift as Oil Stabilizes
- March Retail Sales climbed by 0.9 percent as auto sales gained 2.7 percent.
- Ex-auto Retail Sales increased by 0.4 percent.
- The Producer Price Index for final demand increased by 0.2 percent in March.
- Business Inventories for February increased by a moderate 0.3 percent.
After a three-month decline, retail sales increased by 0.9 percent in February, driven by retail sales of autos which increased by 2.7 percent. Previously reported unit auto sales for March climbed back up to a 17.2 million unit annual rate. Sales outside of autos were generally positive but unspectacular given very strong job growth through February. Building materials sales gained 2.1 percent for the month. Clothing stores increased sales by 1.2 percent in March. We expect firmer home sales this spring to add to overall retail sales, however, this is starting to feel like a different retail sales climate. Year-over-year changes in retail sales are almost always stronger than year-over-year changes in payroll employment. That is not the case now, with a 1.3 percent y/y gain in retail sales and a 2.3 percent y/y gain in payroll employment. Low inflation narrows the gap between job growth and retail sales, but something else is afoot. Retiring baby boomers, and risk averse millennials may have a lower propensity to consume. The Affordable Care Act may also be shifting spending habits for lower income households. Finally, the personal saving rate is trending higher. This shapes our long-term view that U.S. consumers keep pace with the overall economy, but do not lead the economy as they have done in previous decades.
Price indexes are normalizing as oil stabilizes near $50 per barrel. The Producer Price Index for final demand increased by 0.2 percent in March. The energy price sub-index for final demand goods gained 1.5 percent for the month, the first increased since last June. On a year-over-year basis, the PPI for final demand is still negative, down 0.8 percent. But as long as oil does not take another turn south, year-over-year comparisons will turn the corner and head north soon. The National Federation of Independent Businesses said that their Business Optimism Index fell 2.8 points in in March to 95.2 “in sympathy” with a string of weak economic reports. The overall trend is this survey remains positive. We expect to see a sympathetic turn higher in the second quarter. Total business inventories were up a modest 0.3 percent in February after no change in January. It looks like inventory accumulation will be a drag on first quarter real GDP growth. Also, the inventory/sales ratio has been climbing since the middle of last year which is not a good sign.
Market Reaction: Equity markets opened with losses. The 10-year Treasury yield is down to 1.86 percent. NYMEX crude oil is up to $53.06/barrel. Natural gas futures are up to $2.54/mmbtu.
For a PDF version of this Comerica Economic Alert click here: Retail Sales 04-14-15.