6/11/2015
By Jennifer Coombs

Economic data was plentiful on June 11th, and once again the data points towards a strong start to the second quarter of 2015. Firstly, the American consumer showed a big recovery in May, driving retail sales up by 1.2% over the prior month, with gains in nearly all product categories. Perhaps the biggest category driving the number higher was motor vehicle sales, which popped by 2.0% over the prior month, and when this figure is excluded from retail sales the core reading, it is still quite strong at 1.0%. Gasoline sales got a boost from higher prices as well, which resulted in retail sales excluding auto sales and gas to be a solid 0.7%. These results offset weakness in April, when total sales rose only 0.2%, which was revised higher from no change. In contrast to weakness through most of the April report, there's only one component showing contraction in May and that's the usually-solid health & personal care stores at -0.3%. It looks like this is the long-awaited rebound from that dismal Q1-2015 gross domestic product (GDP) report. This data will ultimately have economists increasing their Q2 estimates, and in turn, is one more strong argument for the Fed hawks at the next meeting of the Federal Reserve Open Market Committee (FOMC).

Next, import prices for the month of May increased by 1.3% over the prior month, after slipping by 0.2% in April. It is worth noting that this is the first major monthly increase since June 2014 and the largest one-month increase since the 1.4% rise in March 2012. However, on a year-over-year basis, import prices declined by 9.6% and have not recorded a year-over-year increase since July 2014. Excluding fuel, import prices were unchanged in May after a 0.3% decline in April. A 12.7% jump in petroleum prices in May ultimately led the advance in overall fuel prices and import prices. On the export side, prices increased by 0.6% in May after dropping by 0.7% in April, for the largest one month advance since March 2014. For the month, rising non-agricultural prices more than offset lower agricultural prices and over last year, export prices declined by 5.9%. Excluding agriculture, export prices were up 0.7%, led by higher prices for non-agricultural industrial supplies and materials and automotive vehicles, which more than offset lower prices for capital goods and consumer goods. Ultimately, non-agricultural export prices fell by 4.6% over the same month last year.

Lastly, inventories are back to the normal trend of increasing in-line with sales, and points towards some well-balanced strength for Q-2015 gross domestic product (GDP) estimates. Business-level inventories increased by 0.4% in April, while business sales grew by a strong 0.6% and left the stock-to-sales ratio unchanged at 1.36. Of the three components covered in the report, retail shows a slight imbalance with inventories increased by 0.8% while sales only increased by 0.1%, resulting in a stock-to-sales ratio that’s a bit higher at 1.46 from 1.45 in the prior month. However, this trend is likely to reverse in the May inventory report since retail sales were much stronger for that month. In the other two components, wholesale inventories are a little leaner than they had been, at a stock-to-sales ratio of 1.29 versus 1.30 in March, while manufacturer inventories were a little less lean, resulting in a ratio of 1.35 compared to 1.34 in March. The overall weakness in sales in Q1-2015 resulted in inventory overhang, which apparently is now being reverse. This is ultimately a big plus for both production and employment related data.

Jennifer Coombs
Wall Street Strategies

Add a Comment!