Dreadful Retail Sales in December, Watch the Inventory/Sales Ratio
Retail sales in December were abysmal on every front. Total retail sales during December plunged 2.7% from 2.1% in November. Nearly all sub-components posted significant declines in sales. The 15.9% drop in gasoline sales due to lower prices played a major role but retail sales excluding gasoline fell 1.4% vs. a small 0.1% gain in November. Retail sales have dropped at an annual rate of 24.6% in the fourth quarter vs. a 5.1% drop in the previous quarter, a large part of it is due to the drop in gasoline prices. Retail sales excluding gasoline were down 8.5% in the final three months of 2008 compared with a 0.3% decline in the third quarter (see chart 1). The weakness in retail sales supports expectations of a weak headline GDP number for the fourth quarter and also arithmetically consumer spending and GDP of the first quarter of 2009 are at a disadvantage.
In related news, total business inventories were down 0.7% during November following declines in September (-0.4%) and October (-0.6%). Total business sales fell 5.1% in November, after noticeable declines of 2.4% in September and 3.9% in October. The inventory/sales ratio has risen sharply because sales have fallen more swiftly than inventories in the past three months. The inventory-sales ratio in November was 1.41, up from 1.33 in October (see chart 2). A very rapid and sharp increase of inventory/sales ratios has occurred across the entire distribution chain – wholesale, factory, and retail levels (see chart 3). These ratios are consistent with the current weak economic conditions.
Decline in Import Prices Underscores the Absence of Inflationary Pressures
Given the weak economic situation of most major economies and downward trend of commodity prices, it is no surprise that import prices have fallen. The import price index of the U.S. economy dropped 4.2%, the fourth consecutive monthly decline, with lower prices accounting for a large part of the drop in the overall index. Imports excluding fuels also fell 1.1% in December. It is noteworthy that on a year-to-year basis both the overall import price index (-9.3% vs. +21.4% in July) and the import price index excluding fuels (+1.1% vs. +6.7% in July) have both dropped sharply in a very short time span (see chart 4).
