U.S. Retail Sales Fell in February; January, Too, It Now Turns Out U.S. retail sales fell in the opening months of the year amid lower auto and gasoline sales, highlighting consumer caution amid volatility in financial markets.
Sales at retail stores and restaurants fell 0.1% from the prior month to a seasonally adjusted $447.31 billion in February, the report said. January retail sales dropped 0.4%, versus the initially reported 0.2% increase. (…)
Excluding motor vehicles, retail sales were down 0.1% in February. Excluding gasoline, sales were up 0.2%. Excluding both categories, sales grew 0.3% last month. (…)
February sales excluding gasoline, for example, were 4.8% higher than a year earlier.
A weaker than previously thought retail sales trend so far this year puts further pressure on US policymakers to hold off hiking interest rates.
Official data showed US retail sales falling for a second successive month in February. Sales were down 0.1% last month, and a previously-reported rebound in January was revised away to show a 0.4% decline, according to official data from the Commerce Department.
After rising 1.1% and 0.3% in the third and fourth quarters, respectively, retail sales are running on average 0.2% lower so far in the first quarter compared to the final three months of last year.
More worrying was the news that core sales were flat after a mere 0.2% increase in January, which was revised down from a robust 0.6% rise. The January expansion in core sales had been cheered by the markets as a reassuring sign of consumers’ resilience in the face of worries about stock market volatility, but the state of the retail sector is now starting to look shakier. Core sales so far in the first quarter are running just 0.2% higher than in the fourth quarter, which would be the weakest rate of increase seen for a year (see chart).
* excludes gasoline, food services, building materials and auto sales.
The data will inevitably lead to a raft of downward revisions to analysts’ predictions for first quarter GDP growth. The weaker than expected picture will also add to suspicions that Fed officials, about to gather for their March policy meeting, will no doubt also err towards caution and avoid hiking interest rates again until the economy shows signs of renewed resilience.
The sales data come on the heels of business survey data showing a worrying loss of growth momentum in the economy in February. Markit’s PMI surveys showed one of the weakest expansions of business activity seen since the financial crisis, pointing to GDP growth slowing sharply towards stagnation.
In truth, this latest retail sales report and its downward revision for January a bummer. The script looked so simple: the long awaited oil windfall spending had begun last November and was gathering steam just in time to clear inventories and set the stage for a manufacturing revival this spring. Hmmm…Not so sure it will be that straight lined…
NBF keeps the faith:
While retail data showed a second consecutive drop in nominal sales in February, the latter was largely due to falling prices. In real terms, retail spending is actually well on track to grow in Q1 at a faster pace than in the prior quarter. American consumers seem to be benefiting from a hot labour market (which is boosting household incomes), positive wealth effects for homeowners, cheap credit and low pump prices. As today’s Hot Chart shows, the share of gasoline in total retail spending fell under 7% for the first time in 14 years. Low fuel prices leave more cash in consumers’ wallets to spend on other things. So, it shouldn’t be surprising that discretionary spending, i.e. retail sales excluding gasoline, groceries and health care products, is now at an all-time high.
There is no official stat on real retail sales which complicates the analysis now that good inflation has turned into deflation. Total nominal retail sales are up 3.6% YoY in February but prices are down some 3.5% as this Evercore ISI chart illustrates:
The headline Final Demand Producer Price Index fell 0.2% m/m (0.0% y/y) in February after an unexpected 0.1% m/m rise in January. The February reading was spot on expectations from the Action Economics Forecast Survey. The unchanged y/y reading in February was the first nonnegative monthly reading in 13 months. Final demand prices excluding food and energy prices were unchanged in February from January against an expectation of a 0.1% m/m increase; they had jumped 0.4% m/m in January. Compared to a year ago, this measure was up 1.2%, its highest reading since January 2015.
Given the volatility and difficulty interpreting changes in prices of trade services, both the financial markets and the BLS have begun to shift their view of “core” PPI inflation to final demand prices excluding food, energy, and trade services prices from the historical “core” measure, which excluded only food and energy prices. This “new” core measure rose 0.1% m/m in February, down from +0.2% m/m in both January and December, to stand 0.9% higher than a year earlier.
The February decline in the headline index mostly reflected a 0.6% m/m decline (-2.7 y/y) in prices of final demand goods. The index for final demand services was unchanged in February (+1.5% y/y). The decline in goods prices was led by a 3.4% m/m drop in energy prices (gasoline prices fell 15.1% m/m) with an assist from a 0.3% m/m decline in food prices. Goods prices excluding food and energy edged up 0.1% m/m (+0.2% y/y) in February.
After three consecutive monthly increases, the index for final demand services was unchanged in February, but the 1.5% y/y increase was the highest since January 2015. In February, a 0.3% m/m increase in prices of final demand services excluding trade, transportation, and warehousing (led by a 4.8% m/m jump in prices for brokerage services, the third consecutive significant monthly increase–this index is now up 25% y/y) offset a 0.4% decrease in prices for final demand trade services (usually volatile and difficult to interpret change–this index had jumped 0.9% m/m in January) and a 0.7% drop in prices of final demand transportation and warehousing services.
Final demand construction prices fell 0.1% m/m in February, the third monthly decline in the past four months, but were up 1.0% from a year earlier.
Prices of processed goods for intermediate demand slumped 0.7% m/m in February, their eighth consecutive monthly decline, and were 5.6% lower than a year earlier.
The Composite Housing Market Index from the National Association of Home Builders-Wells Fargo held steady m/m at 58, the lowest level in nine months. The NAHB figures are seasonally adjusted. During the last ten years, there has been an 81% correlation between the y/y change in the home builders index and the y/y change in single-family housing starts.
The index of single-family home sales was unchanged (+12.1% y/y) at 65. Offsetting this stability, however, was a 4.7% decline (+3.4% y/y) in the index of expected sales during the next six months. It was the lowest level in twelve months.
Home builders reported that their traffic index improved 10.3% following three straight months of decline.
More top corporate leaders said they expect to cut employment at their firms in the next six months than add jobs, according to the Business Roundtable’s first-quarter CEO Economic Outlook Survey, released Tuesday. The group’s members are chief executives at the country’s largest firms.
The survey found 38% of those polled expect their companies to reduce employment in the next six months, versus 29% expecting to increase employment. The fourth-quarter survey showed 34% expecting a decrease, and 35% expecting an increase over the next half year.
In the latest survey, the CEOs said the U.S. economy would grow 2.2% during 2016. That’s down from an expectation for a 2.4% advance this year recorded in the fourth-quarter poll. Gross domestic product increased 2.4% in 2015, according to the Commerce Department. (…)
The Roundtable’s Outlook Index did increase to 69.4 from 67.5 in the fourth quarter. The slight improvement reflects a better outlook for sales growth and investment plans. Still, the reading is among the lowest since the recession ended. A year ago the index was 90.8. Readings above 50 indicate economic expansion.
The European Union’s statistics agency said on Wednesday that construction rose 3.6% on the month, the largest month-to-month rise since March 2012. Eurostat said output was 6% higher than in January 2015, the largest year-to-year gain since April 2014.
The January jump in construction was led by Germany. The eurozone’s largest member recorded a 7% increase, but that was bettered by France, which recorded a rise of 7.3%. Construction in Spain rose 2%, and in Portugal by 0.9%. However, there were weaker spots, with production falling 0.2% in the Netherlands and 6.2% in Slovakia.
The January surge follows a strong end to 2015, when construction was up 1.3% in the final three months after declining in each of the three previous quarters.
(…) As the forecasts roll in, the reasons for the downbeat attitude are clear enough. The first quarter is typically the most active on Wall Street trading desks, as big investors like hedge funds put their money to work.
Instead, it is shaping up to be a lot more like the disappointing final months of 2015, when concerns over economic growth and commodities prices left trading activity and revenue slumping for major banks. (…)
Jefferies, a unit of Leucadia National Corp., swung to a loss during its first quarter ended Feb. 29, as trading revenue tumbled and the firm took two unusual hits to its normally solid equities-trading business.
Morgan Stanley, meanwhile, said that first-quarter revenue this year was tracking closer to the fourth quarter of last year’s, normally a much weaker quarter for bank trading revenue than the first quarter, in various markets. (…)
Analysts from Credit Suisse Group AG predicted that the five biggest Wall Street banks would report trading revenue of $19.1 billion for the first quarter, down 16% from a year earlier. Analysts at UBS Group AG said this year is shaping up to be the worst first quarter in trading revenue in at least seven years.
Last year, the first quarter proved to be a high-water mark for 2015. Among large banks, trading revenue of $23.7 billion in the first quarter made up about 32% of the year’s annual trading revenue of $73.1 billion, said UBS analyst Brennan Hawken. By the end of last year, sentiment on trading had soured to the point that Morgan Stanley moved to lay off 25% of its debt traders and salespeople in December. (…)
Jefferies executives said Tuesday that trading conditions improved in March, after the close of the bank’s Feb. 29 quarter.
“While we are early in the quarter and one can never predict the future, it appears markets have not only stabilized, but aggressively snapped back,” Chief Executive Rich Handler and executive committee Chairman Brian Friedman wrote, pointing to improved conditions recently in bank stocks, junk-bond-fund inflows and energy prices.
Last week, Citigroup Chief Financial Officer John Gerspach said revenue from equities and fixed-income trading likely fell 15% in the first quarter. (…)
Chinese Premier Li Keqiang said it would be “impossible” for China to fall short in meeting its relatively high economic-growth targets even as it pushes ahead with structural reforms.
Speaking to reporters at the conclusion of China’s annual legislative session, Mr. Li said China won’t suffer a “hard landing,” or sharp downturn, and can achieve growth and reform simultaneously.
“Reform and development aren’t contradictory,” he said. “We should be able to stimulate market vitality and support economic development via structural reforms.” (…)
Mr. Li said capital-adequacy ratios at China’s financial institutions are sound, bad loans are well covered by reserves and the nation is making progress in cutting corporate debt using debt-for-equity swaps.
Mr. Li signaled that China will do what it takes to maintain its growth targets and that it has a “good reserve” of policy instruments in the event that growth falls outside an acceptable range, He said China will employ “innovative measures” to ensure steady economic progress. (…)
Mr. Li said restructuring and a reduction in overcapacity will be achieved without a sharp increase in layoffs or unemployment, pointing to the 13 million urban jobs the nation created last year.
Oil prices firmed on Wednesday on an announcement that producers will meet next month in Qatar to discuss a proposal to freeze output and on growing signs of a decline in U.S. crude production.
Producers both from and outside the Organization of the Petroleum Exporting Countries will hold talks in the capital Doha on April 17, Qatari oil minister Mohammed Bin Saleh Al-Sada said.
Around 15 OPEC and non-OPEC producers, accounting for about 73 percent of global oil output, support the initiative, the minister said in a statement. (…)
On Monday, Russian Energy Minister Alexander Novak said a deal could be signed excluding Iran, which he said has the right to boost oil output after years of sanctions.
OPEC sources told Reuters a deal excluding Iran is not ideal, but not a deal breaker. (…)
Meanwhile, back at the wall:
FYI, Lowry’s Research says sees weakness in the broad market with high selectivity and weak upside momentum characteristic of a weakening rally.