Popular Economics Weekly
Retail sales soared last month and inflation was nowhere to be found, indicating that we should have at least a 3.5 percent GDP growth rate for the first quarter January to March, which follows the 5.6 percent rate in Q4 2009. Consumers are spending again, in spite of flagging confidence, proving that one can shop and feel depressed about it at the same time. But cheer up, consumers, since retail is 50 percent of all consumer consumption, spending your hard-earned savings should mean more investment, and jobs.
Overall retail sales in March jumped 1.6 percent after gaining 0.5 percent in February, and are up a huge 7 percent, year over year. The March boost topped market projections for a 1.2 percent spike. Motor vehicles provided a huge contribution, spiking 6.7 percent after dipping 1.9 percent in February. But even excluding autos, sales in March posted another healthy gain, rising 0.6 percent which came after a 1.0 percent surge in February.
Fed inflation hawks got no help in March as consumer price inflation was essentially nonexistent. Overall CPI inflation for March nudged up to 0.1 percent from no change the prior month. The rise matched the consensus forecast for a 0.1 percent increase. Core CPI inflation, however, showed no change from up 0.1 percent in March and coming in just under expectations for a 0.1 percent gain. At the headline level, food prices rose moderately while energy costs were flat. The core was held down in part by declines in apparel and recreation and flat housing costs.
Another boost to consumer confidence may come from March industrial production, which rose to 4.0 percent from 2.2 percent in February. Within manufacturing, durables output jumped a sharp 1.4 percent with all major categories advancing, most over 1 percent. Nondurables production increased 0.5 percent in March, led by a 3.0 percent jump in petroleum & coal products and by a 1.7 percent gain in rubber products. Other increases were more moderate but still widespread.
And the recovery finally is starting to take traction beyond just manufacturing. The ISM’s non-manufacturing index for March improved to 55.4—a 2.4 point jump from the prior month. The index has been in positive territory for three months in a row.
Forward momentum looks good as the new orders index spiked 7.3 points to a really hot 62.3 reading. This is the highest level for this index since a reading of 63.0 in February 2005, according to Econoday. Export orders were strong, jumping more than 10 points to 57.5. Adding to the argument that forward momentum is strengthening, backlog orders also rose, gaining over 9 points for the month to 55.5.
The huge output increase in both the manufacturing and non-manufacturing (service) sectors has to boost employment in coming months, as we said. Even builder optimism rose, as new-home traffic has increased, according to the National Association of Home Builders, indicating that housing is not slipping back into recession although this sector is still getting support from homebuyer tax credits that are about to expire..
Housing starts in March strengthened from snow bound February-with permits pointing toward even better improvement than starts. March construction rebounded 1.6 percent after a snow storm damped 1.1 percent rise in February. The February number was revised up from an original estimate of a 5.9 percent drop. The March annualized pace of 0.626 million units rose 20.2 percent on a year-ago basis.
This is in spite of flagging consumer sentiments. Consumer sentiment has fallen deeply the last two weeks in a surprise that indirectly points to trouble in the labor market, according to the University of Michigan survey. The mid-month consumer sentiment index fell to 69.5 vs. 73.6 in March. Deterioration is deepest in the leading component, expectations, which fell 5.6 points to 62.3 and a level last seen mid-year last year when payrolls were still declining severely.
We hope consumers aren’t dispirited because they are again spending what they don’t have. The evidence doesn’t show such. It may just be all the bad news still out there. The actual recession probably ended last July or August. But even the National Bureau of Economic Research that calls recessions refused to announce that fact, saying, “Although most indicators have turned up, the committee decided that the determination of the trough date on the basis of current data would be premature. Many indicators are quite preliminary at this time and will be revised in coming months.”
With even the experts uncertain about economic growth, it is no wonder consumers are still pessimistic about their future.
Harlan Green © 2010