There were lots of important reports on the U.S. economy released this morning. First, data from the Census Bureau showed that advance estimates of retail and food services sales for April totaled $453.4 billion, an increase of 1.3 percent from March and the largest expectations beat in more than three years. This solid headline gain was driven by sharp increases in sales at motor vehicles/parts dealers and gasoline stations. However, core retail sales, which exclude the volatile autos and gasoline components, rose by 0.8 percent in April, also better than expected. The healthy core reading was helped by a 1.0 percent rise in sales at clothing stores, likely related to continued inventory liquidation, and above-trend growth at nonstore retailers (Amazon). Gennadiy Goldberg, a U.S. strategist at TD Securities, added that “Consumers still should have money to spend. They have been saving quite a bit, so they do have a fairly substantial cushion.”
Next, a report from the Bureau of Labor Statistics (BLS) showed that wholesale inflation pressures in America firmed last month, with the producer price index for final demand (PPI-FD) rising by 0.2 percent in April. This is below the 0.3 percent gain economists had expected but still the first month-over-month increase since January. “Core” PPI-FD, which excludes the more volatile food and energy components, also rose in April (+0.1 percent), helped by a 4.5 percent jump in portfolio management costs. The recent weakness in the U.S. dollar, along with the sharp rebound in the price of oil, have together helped prop up inflation measures over the past few months. However, additional upward price pressures should remain muted in the near future if the Fed continues to signal a slower pace of interest rate hikes than previously anticipated.
Elsewhere, the popular consumer sentiment index from the University of Michigan surged from 89.0 in April to 95.8 during the first half of May, the first month-over-month increase since December and the best reading in almost a year. Americans’ views of both current and future conditions rebounded in May, with much of the strength due to brighter outlooks on wage growth, employment opportunities, inflation, and interest rates. However, Richard Curtin, director of the Michigan Survey of Consumers, added that “The data still indicated the negative impact of uncertainty about future economic policies associated with the Presidential election, but its overall impact was overwhelmed by favorable economic developments. It is too early to judge the potential impact of the election on consumers’ expectations, and one month’s rebound in consumer confidence is insufficient to increase the current forecast for inflation-adjusted consumer expenditures from 2.5% during 2016.”
Finally, a report from the U.S. Department of Commerce showed that total business inventories in America jumped by 0.4 percent in March (lagged), double the increase expected, and total sales lifted by 0.3 percent during this same period. However, the important stock-to-sales ratio held at 1.41, a level often seen during a recession. Similar data on wholesale trade was released earlier this week and given the way that U.S. gross domestic product (GDP) is calculated, the need for continued inventory liquidation could drag on official growth measures in the second quarter. However, an uptick in sales can help offset such a headwind and this is why Goldman Sachs already raised it Q2 GDP estimate from 2.3 percent to 2.6 percent shortly after the release of this morning’s better than expected retail sales data.
Sources: Econoday, Bloomberg, Twitter, ZH, UoM, BLS, Census Bureau, FRBSLPost author: Charles Couch