Likely as a result of lower gasoline prices, November retail sales came in at a strong 0.7% boost after rebounding by 0.5% in October and well above consensus at 0.4%. Automobile sales also jumped considerably, by 1.7% after an increase of 0.8% in October, which mirrors the strong auto sales report from earlier this month. Excluding autos, sales increased by 0.5% after increasing by 0.4% in October, while forecasts were for a 0.1% increase. Ultimately, this shows that longer-term retail sales are improving. Core strength in the reading was broad based, but primarily led by building materials & garden equipment (+1.4%), clothing & accessories (+1.2%), and non-store retailers (+1.0%). This report is favorable for fourth quarter GDP in the personal consumption component; the consumer sector is currently leading the recovery as spending and confidence are trending higher. 

 

 

Next, international trading price pressures were absent in the November report on import and export pricing. Import prices declined by 1.5% in November, the fifth straight drop and the steepest drop since June 2012. Export prices declined by 1.0% for the fourth straight decline and matched the steepest decline also since June 2012. The year-over-year rate for import prices came in at -2.3%, which is the steepest negative reading since April 2013 and export prices declined 1.9% year-over-year with the steepest drop since October 2013. It isn’t just oil-related prices that are declining: excluding petroleum, import prices declined by 0.3% while export prices, excluding both food and fuels for this reading, fell 0.5%. The year-on-year reading for ex-petroleum import prices is at + 0.1% with ex-food & ex-fuel export prices at -0.4%. The index reading below excluded petroleum and food prices. Ultimately, it’s a stronger US dollar that is keeping import prices low but since export data is also declining, it must be more than that. This report points to potentially very soft readings for tomorrow's producer price (PPI) report and it won't be lifting expectations for next Wednesday's consumer price (CPI) report.

 

 

Lastly, business inventories showed some considerably healthy data, reflecting that of the wholesale inventories report from earlier in the week. Total business inventories increased slightly by 0.2% in October, but there was no significant change relative to business sales which declined by 0.1%. This meant that the stock-to-sales ratio was left unchanged at 1.3 for the third month in a row. Retail inventories increase by 0.2% in October, while sales increased by 0.4%, here too the inventory-to-sales ratio was unchanged at 1.42. November’s retail sales report, mentioned above, points to a possible draw on retail inventories and a subsequent decline in this ratio next month. For the other two components, wholesalers and manufacturers, there was also little change with their inventory-to-sales ratios at 1.19 and 1.31, respectively, in October.  Ultimately, inventories remain relatively lean at businesses and are very well-managed, which are important positives for the future of both production activity and employment.