Inventories, Wholesale Prices, Retail Sales: Lots Of Data Little Clarity

This is the beginning of a week with lots of data. Of course, second quarter numbers are high on everyone’s list but there’s also a lot of economic data coming out. Today we have wholesale prices, inventories and retail sales.

Wholesale Prices

Wholesale prices jumped 1.8% in June. Excluding food and energy prices the core rate was up 0.5% but this was still well above the expected increase of 0.1% in the core rate. No talk yet from the inflation hawks but this will probably trigger some. I still can’t buy into any inflation threat given the slack in the economy and what I consider to be wage deflation. (Market Watch Report Here)

Inventories

Business inventories fell 1% against a projected decline of 0.9%. There wasn’t much real news here save for the decline in auto inventories. They fell 4.2% and are down 21% year-over-year. There’s a better than even chance that autos could be a bright spot in the second half as inventories are rebuilt and sales tick up simply because some cars have to be replaced. (Market Watch Report Here)

Retail Sales

Retail sales were up 0.6% which the headlines are telling all of us is the best they’ve been since January. Dig in a little bit and you find that stripping out autos and gasoline, that sales were actually down 0.2%. Gasoline sales were up because prices rose and autos are simply rebounding off of depression era levels. Overall, it’s a pretty weak report. (Market Watch Report Here)

From the WSJ Real Time Economics Blog, here are some further thoughts on retail sales:

  • The 0.6% month-to-month increase in retail sales in June is not half as good as it looks because it was entirely due to the combination of a 2.3% rebound in motor vehicle sales and a 5.0% price-related surge in sales at gasoline stations. The former is a classic dead cat bounce. The latter is actually bad news for spending in real terms. –Paul Ashworth, Capital Economics
  • Surging gasoline prices and rainy weather in June were temporary factors constraining sales. Beneath these volatile influences, consumer demand is constrained by job fears and limited credit availability… Spending on gasoline — that rose 5.0% month-to-month in June — forced consumers to reduce spending on other goods. Discretionary spending — which includes autos — is recovering from the lows. –Stephen Gallagher, Societe Generale
  • The thrill of shopping is not yet back. People are starting to loosen their grips on their wallets but only at a modest pace. Retail sales rose solidly in June as demand for motor vehicles picked up. But even there, the rise was somewhat disappointing. Sales are still way too low to ease the pressure on vehicle makers. There was a sharp increase in gasoline purchases but that was likely the result of higher pump prices not a lot more driving. With the weather in June so wet in the Northeast, people probably didn’t do nearly as much driving as they might have if it was hot and sunny. Without the increase in gasoline, the overall rise in sales would have been half as much. The rain might have caused typical June vacation spending to be disappointing, as might be indicated by the sharp decline at restaurants. Wet weather also may have contributed to the lousy demand for building and garden supplies. Yes, I am blaming a lot on the weather but boy it was depressing. And we did buy more goods online. So maybe might theory might not be that far off. –Naroff Economic Advisors
  • Consumer spending is no longer in the free-fall that was apparent over the second half of 2008 but, the improvement in measures of consumer confidence over recent months notwithstanding, consumers are clearly keeping a tight rein on discretionary spending. This comes as no surprise given the ongoing erosion in labor market conditions, the sizeable loss of household net worth over recent quarters, restrictive credit market conditions, and the still-crippled housing market. It is important to note that the damage from the labor market comes not only in the form of still broad-based job losses, but also what have been cutbacks in hours worked, which are taking a toll on the earnings of many who still have jobs.–Richard F. Moody, Forward Capital
  • That nongasoline retail sales were little changed in aggregate on a month-to-month basis over the latest three months in spite of the tax cut that was implemented starting in April can hardly be described as a good showing. Rather, it is clear that this fiscal boost is mostly being used to help fill the hole left by a decimated labor market and/or to help households whittle down debt burdens. –Joshua Shapiro, MFR Inc.
  • On the whole, this was a decidedly mixed report as the better than expected print on the headline number masks the weak underbelly of core consumer spending, which continues to decline. More importantly, with U.S. households appearing to have rediscovered their long-lost ability to save in recent months, it appears that consumer spending is likely to remain soft for some time, notwithstanding the massive fiscal stimulus being administered to the U.S. economy. –Millan L. B. Mulraine, TD Securities
  • Retail sales have risen 3.5% over the last three months versus a 9.0% decline over the last year, which provides further evidence that consumer spending may be stabilizing. Although part of the increase in June resulted from higher auto sales (whereas industry data show a decline in unit sales) and surging gas prices in May and June added about 0.5 percentage points to the increase in core retail sales (and thus subtracted either from spending in other areas or from savings), it appears real PCE is still on track to record a decline of only around 1% in the second quarter. –RDQ Economics
  • Core sales are not falling anything like as fast as in the months after Lehman, but there is absolutely nothing here that could be called a green shoot. –Ian Shepherdson, High Frequency Economics
  • While the overall results looked similar to May, sales differed noticeably across sectors. For instance, sales at building materials stores fell 0.9% in June after rising 0.4% in May, itself a big down revision from the 1.3% gain previously estimated. Other durable goods sales were mixed with rebound in sales at electronics stores reversing a decline in May while furniture stores reported a fourth straight loss. These data are largely consistent with our assessment that inflation adjusted consumer spending remained soft in June and was down in the second quarter but less than feared when the quarter began. –Nomura Global Economics
  • The home electronics category posted its first gain since February. Sales of the new iPhone model may have provided a boost helping to offset sluggish demand for fans and air conditioners tied to much cooler than seasonal temps in parts of the country. The consumer is still under considerable pressure tied to a weakening labor market, a negative wealth effect and tight credit conditions. Moreover, headwinds associated with high energy prices reached a peak in June. Finally, the near term tax stimulus is really too small to have any noticeable impact. –David Greenlaw, Morgan Stanley
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