Tuesday, April 17, 2007
CPI And Retail For March
While I was listening to the radio reports on the killings with my mouth hanging open, yesterday the retail sales report (advance) for March was released. This morning the Consumer Price Index for March was released.
The market appeared to take strength on yesterday's retail sales, but in light of CPI today, it might not be so sanguine. The headline gain in retail sales was .7%, but the headline increase in CPI-U is .9%. The logical conclusion is that price-adjusted sales (real sales) declined from February to March. Gas sales and gas price increases support that theory strongly.
Retail sales for February were adjusted to .5% gain, but that really matches CPI for February. Based on these numbers alone, one would say that consumer spending is dropping, if anything.
HOWEVER, it's important to realize how big a margin of error these numbers really have. If you scroll down to the end of the retail sales report, you will see the CV for these numbers. The margin of error is such that in any one month, we rarely can be reasonably certain of whether retail sales increased or decreased. The quarterly figures are more reliable.
Annualized SA CPI for the three months ending in March (modified due to a change in the figures posted on the CPI website!)
- Total rose 4.7%
- Food & beverages rose 7.4%
- Transportation rose 8.3%
- Medical care rose 5.6%.
- The special index for energy rose 22.9%.
My intuition, based on early home sales patterns for March, is that the economy is taking a slight uptick. I don't think it will last long, but I believe that higher income people are taking advantage of declining asset values (houses, cars) to spend more. I've got just about no proof whatsoever for that theory!!
It's an educated guess formed from looking at home sales patterns in high income areas (better than last year for the upper-bracket homes) combined with the sales tax figures, which seem to show that spending is increasing in high-income states while it is dropping in lower-income states. It is a logical pattern of development, because many people are doing extremely well. Needs inflation weighs far, far less on the spending for higher-income households - indeed, asset deflation may be infusing higher income households with more spending power. If you can afford to buy many larger ticket items, your relative gains on those purchases may well be outweighing your higher costs for basics.
So my best guess is that we are in a phase in which spending for basic needs (fuel, food, etc) will be depressed, but spending for high end wants (autos, for example) will show more strength. The fate of the economy appears to rest upon the spending of the top 30% of the income bracket. What should unquestionably be hurt by this are lower-end restaurant chains, grocery stores, and discretionary spending on mass-market items like electronics, books, hobby items and sports equipment.
Based on CPI for three months and retail sales for three months, real purchases of items like fuel and food do seem to be dropping. That much is likely true. I'm sorry that I don't have the heart to post about these figures in more detail. Maybe tomorrow. It warrants a closer look.
The market will probably continue to throw itself a party, because those folks are not exactly close to the ground. However, whatever you do, stay away from homebuilders. Their pain has just begun. The combination of higher liabilities from high previous sales, high carrying costs on excess inventory, and lower sales is going to hurt their balance sheets badly over the next year and a half.
From the release itself:
The Consumer Price Index for All Urban Consumers (CPI-U) increased
0.9 percent in March, before seasonal adjustment, the Bureau of Labor
Statistics of the U.S. Department of Labor reported today. The March
level of 205.352 (1982-84=100) was 2.8 percent higher than in March 2006.
The Consumer Price Index for Urban Wage Earners and Clerical Workers
(CPI-W) increased 1.0 percent in March, prior to seasonal adjustment. The
March level of 200.612 (1982-84=100) was 2.7 percent higher than in March
The Chained Consumer Price Index for All Urban Consumers (C-CPI-U)
increased 0.8 percent in March on a not seasonally adjusted basis. The
March level of 118.953 (December 1999=100) was 2.5 percent higher than in
March 2006. Please note that the indexes for the post-2005 period are
subject to revision.
There was a recent NY Times article discussing the problem with unemployment claims on building, and the illegal employment question in CA. We are in an interesting time when a lot of stats (employment last year, and unemployment this year) are less reliable than normal because of the odd economic situation.
I think a lot of money is coming into the market out of housing and mortgages.
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