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Dissecting the Economic Data


A closer look at reports from mid-April.


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Weakness in March retail sales is a reminder of household frugality in this climate.
The consensus had been more constructive than I on March retail sales - especially excluding autos. In actuality, results reported on April 14 were broadly negative, with retail sales declining 1.1% from February. One piece of good news was that the February decline of 0.1% was revised to show a 0.3% advance. Cyclical areas showed real weakness in March, while the food/beverage stores sector was the area of greatest strength

The reality is that nominal retail sales are down 9.4% on a year-over-year basis - down 6% excluding autos. Some optimistic pundits are arguing about faulty seasonal adjustment factors because Easter was in March last year, but in April this year. These same Pollyannas advise that we'll see a strong retail-sales gain in April.

When we assess the fundamentals of faltering income, escalating job losses, heightened consumer frugality and an associated boost in the savings rate, we see consumer discretionary spending still weak going forward. Income tax refunds could enable a particular monthly sales number or even 2 to look strong, but household sector balance-sheet repair, deleveraging, is the core fundamental at play between now and 2011.

The March Producer Price Index (PPI) reported on April 14 dropped 1.2% - the most significant drop in overall producer prices since 1950. Prices are down 3.5% year over year. At the intermediate stage of production, producer prices have deflated at a 27% annual rate over the past 6 months, while at the crude stage, producer prices have deflated at a 60% annual rate over the last 6 months. The specter of deflation is alive and well. The core, excluding food and energy, has been slowing, but is still up 3.8% year over year.


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