NAROFF ECONOMIC ADVISORS, Inc.
Joel L. Naroff
President and Chief Economist
KEY DATA: Sales: +0.9%; Excluding Vehicles: +0.4%/ PPI: +0.2%; Goods less Food and Energy: +0.2%
IN A NUTSHELL: “Consumers are picking up the shopping pace but they can spend a whole lot more.”
WHAT IT MEANS: It finally looks a lot like spring but that doesn’t mean the winter weather still isn’t with us, at least when it comes to economic data. Retailers took a hit because of the cold and snow and the March data seem to indicate that as conditions moderated, consumers started venturing out to the stores again. Retail sales jumped, helped by a sharp rebound in motor vehicle purchases. Indeed, vehicle purchases jumped 5.5%, though dollar sales were up less. There was also strong demand for furniture, clothing, building supplies and general merchandise. People also ate out a lot when they shopped. But not every segment got some additional loving by consumers. Sales of electronics and food for home fell and we also didn’t do a lot of shopping online. There was also a strange decline in gasoline purchases. Gasoline prices were up over 10% but sales, which are not adjusted for prices, were down. That doesn’t make much sense.
On the inflation front, wholesale costs rose moderately in March. Rising energy costs helped, though even excluding energy, producer prices increased a touch. Goods prices had been falling for several months, but no matter how you sliced or diced the data – and the report does that in a wide variety of ways – costs were up in March. That, actually, is a good sign as it indicates demand may be coming back. Services inflation, which has softened recently, moved back into the positive range. We had not been seeing much there as lowered transportation costs kept services prices under control. Looking down the road, the price increases in intermediate and unprocessed products generally fell only modestly. That points to a possible further slowing in the wholesale disinflationary process.
MARKETS AND FED POLICY IMPLICATIONS: March was a transition month as the weather eased, but not everywhere and not as much as most of us would have liked. The solid, though not spectacular, retail sales numbers point to a consumer that is finally venturing out. The rapidly improving April weather should lead to another solid rise in spending, though we will not know that for another month. This is the first indicator that supports the view that it was the weather, not a general economic slowdown, that led to the weak first quarter reports. That would normally make investors a little more comfortable, but we are in the midst of earnings season, so the hits and misses coming from companies will likely be the driving force in the markets. Since the Fed members try not to react to any given monthly number, the retail numbers should remind them that the April and May data, which will be out before the June FOMC meeting, could be telling. However, inflation remains quite subdued, so the Fed doesn’t have to be impatient. In other words, the April 28,29 FOMC will likely be non-event as there will be few non-weather-impacted data points that will be released before then that could cause a change in the statement.