US economic data are turning ugly, and not just because of the weather. Retail sales in the latest three months have suffered the steepest fall since the first quarter of 2009, when the global financial crisis was at its peak.
A 0.6% deterioration in sales in February was possibly due to severe weather affecting many parts of the country in the second half of the month, but this was not a one-off fall. Sales have now fallen in each of the past three months, which rings alarm bells about the health of the US economy. The latest decline follows a 0.8% drop in January and a 0.9% decline in December. Over the past three months, sales are down 1.2% on the previous three months.
So far in the first quarter, retail sales are down 1.6% on the fourth quarter of last year. (…)
Core sales are so far up just 0.1% in the first quarter (yes, that’s an annualised rate of just 0.4%), which means we’re probably going to see some substantial downward revisions to first quarter GDP estimates.
Weather blaming is on:
Weather was likely one factor in disappointing retail numbers last month. The Northeast was particularly hard hit, with Boston receiving record snow and Chicago, Cleveland and Buffalo, N.Y., all registering their coldest February. Other parts of the country, though, were relatively balmy. Arizona, California, Nevada, Utah and Washington all had their warmest winter on record, according to the National Oceanic and Atmospheric Administration. (WSJ)
Remember last year’s weather, dubbed the Polar Vortex? Whatever it was on average this year, it compared against an even worse period last year. And the weather has not been so bad during all three months since December.
Still, even though economists expected to see a weather effect, they were surprised at how weak sales were. Moreover, Thursday’s numbers were just the latest in a string of soft retail reports. Sales away from gasoline stations rose by just 0.1% in January, following a decline of 0.2% in December.
It is not as if people don’t have the wherewithal to buy more. Thanks to the sharp drop in pump prices, Americans spent nearly $10 billion less at gasoline stations in February than they did in the same month last year. Last week’s employment report showed aggregate weekly payrolls—a measure of total U.S. wages—rose 5.4% in February from a year earlier.
And a separate report from the Federal Reserve released on Thursday showed that U.S. household net worth increased to $82.9 trillion in the fourth quarter of 2014, up $4.1 trillion from a year ago. Meanwhile, the household debt-to-income ratio fell to its lowest level in a dozen years. (WSJ)
Such wide gaps between income and spending are really unusual in America. Something else is going on.
A quick look at the recent data gives the impression that sales are chugging along. Retail “control” sales, which go into GDP calculations, are up a nice 4.2% YoY as illustrated by this Doug Short chart:
But this is an illusion created by the really bad retail sales early in 2014 when the whole country was enveloped in the so-called polar vortex. This abnormally low base has kept the YoY growth rates in the 4% range. But the reality is that sales have been very weak every month since December, falling at surprisingly high rates annualizing the last 3 months.
Two charts to illustrate the point:
Sales volumes may be better than suggested by the nominal data. The recent declines could be primarily due to falling prices. Nonfuel import prices fell another 0.3% MoM in February. They have declined every month since September, at an annualized rate of –3.2% during the last 6 months, accelerating to –5.5% in the last 2 months.
We should learn more on this with today’s PPI and next week’s CPI reports.
Unless sales and/or prices pick up measurably in coming months, retailers will start to complain about sales and margins. Economists will need to rethink the oil windfall and a U.S. soft patch scenario will resurface. Haver Analytics calculates that during the last ten years, there has been a 92% correlation between the YoY change in retail sales and the change in real GDP.
“U.S. supply so far shows precious little sign of slowing down,” the IEA said in its monthly oil market report. “Quite to the contrary, it continues to defy expectations.”
“The unwinding of seasonal refinery maintenance may slow U.S. crude stock builds in 2Q15 but will not stop them, and stocks may soon test storage capacity limits. That would inevitably lead to renewed price weakness,” the agency said.
Global supply was up 1.3 million barrels per day (bpd) year-on-year at an estimated 94 million bpd in February, led by a 1.4 million bpd increase from non-OPEC producers, the IEA said.
It saw world oil demand this year at 93.50 million bpd. (…)
News of a deal to end a strike by U.S. refinery workers helped support oil as it could help to increase demand for crude oil for processing in the world’s biggest oil consumer.
The strike, the largest walkout by U.S. refinery workers in 35 years, has affected around a fifth of the oil processing capacity in the United States, limiting throughput.
The deal could reduce U.S. crude stockpiles, which climbed last week to the highest level for this time of year in more than 80 years.
But Americans are ON THE ROAD AGAIN:
From Doug Short:
The Department of Transportation’s Federal Highway Commission has released the latest report on Traffic Volume Trends, data through December.
“Travel on all roads and streets changed by 5.0% (11.9 billion vehicle miles) for December 2014 as compared with December 2013″. The less volatile 12-month moving average is up 0.39% month-over-month and 1.69% year-over-year.
Americans are back on the road with their new SUV’s. No wonder gasoline consumption is rising.
Spending at Gas Stations Rises for the First Time Since May Americans spent more at gas stations in February, the first time since May 2014.
The rising dollar’s ripple effects: U.S. Steel to Idle Minnesota Plant U.S. Steel on Thursday announced more layoffs as it struggles to contend with surging imports and declining demand in the energy sector.
Household Net Worth Rises to Record Americans’ wealth rose to its highest level ever in the fourth quarter of last year—rising about 2% to $1.5 trillion—thanks to gains in the stock market and home prices that could prop up consumer spending and economic growth this year.
(…) A measure of owners’ equity as a share of the value of real-estate holdings hit 54.5%, up from 54% in the third quarter and well above the roughly 40% level in 2010. Growing levels of home equity suggest the benefits of the economic expansion are reaching more people. (…)
A Windfall for China as Commodity Prices Plunge China estimated to be saving over $600 million on its daily oil import bill
(…) By some estimates, China is enjoying annual headline savings of as much as $250 billion from stepped-up purchases of discounted oil, copper and iron ore–much of it arriving aboard dented bulk carriers and greasy tankers at northeastern Dalian port and other trade gateways. (…)
China’s finance ministry said in a report released at the national legislature’s annual session ending Sunday that it planned to spend 154.6 billion yuan ($24.7 billion) this year building up its reserves of grains, edible oils and what it termed “other materials, ” a 33% rise over 2014 when stockpile-spending rose 22%.
The windfall comes on top of China’s steady trade surpluses and nearly $4 trillion in reserves, and makes it more affordable for Beijing to prop up beleaguered oil-producing partners like Russia and Venezuela. (…)
China has long-term oil supply contracts with Venezuela and Russia, two countries that share its suspicion of U.S. policy, and hasn’t re-negotiated terms of delivery since prices tumbled, said American Enterprise Institute scholar Derek Scissors. In doing so, Beijing is betting that timely support will further its longer-term strategic interests and be remembered when prices recover. (…)
Commerce Ministry spokesman Shen Danyang confirmed in a recent briefing that China is boosting commodity imports to take advantage of lower global prices. He said Beijing continues to support longstanding allies. If Russia is in need, “China will provide necessary assistance within its capabilities,” he said. (…)
Russia Cuts Interest Rates Key rate reduced for second time in two months
Russia’s central bank on Friday cut its key interest rate for the second time in two months, by one percentage point to 14%, and said more rate cuts are in the pipeline.
The latest cut follows the central bank’s emergency move in December to sharply raise interest rates to try to stem a collapse in the ruble.
Friday’s move is another sign of confidence from Russian authorities that the worst of the economic turmoil caused by Western sanctions and the plunge in the oil price could soon be over. But economists said it represents a risky bet that Russia’s still-fragile financial system could soon be on the mend.
As well as its key rate, the central bank cut its deposit rate to 13%, while the repo rate went down to 15% on the back of long-awaited slowdown in inflation.