Autos and Non-auto Components Lift Retail Sales in August
The 2.7% jump in retail sales reflects a 1.1% increase in purchases of cars, a 5.1% gain in gasoline sales, and a 0.6% advance of retail sales excluding autos and gasoline. In other words, the strength in retail sales was widespread during August. The “cash for clunkers” program boosted auto sales in August, which should be followed by a partial reversal in the months ahead. The price-related hike in gasoline sales should show a moderating trend in September. Among the non-auto and gas components of retail sales, only purchases of building materials (-1.6%) and furniture (-1.2%) fell in August, while general merchandise (+1.6%) and apparel (+2.4%) sales moved up.
The July-August average of retail sales rose at an annual rate of 1.6% vs. a 1.4% drop in the second quarter. The headline numbers and sub-components show a noticeable improvement in retail sales in the third quarter compared with the second quarter. This bodes positively for third quarter consumer spending and the headline real GDP.
Wholesale Price Index Movement Largely an Energy Price Story
The Producer Price Index (PPI) of Finished Goods moved up 1.7% in August following a 0.9% drop in the prior month. The wide swings of this index are largely due to similar noticeable movements of the energy price index (see chart 2). According to the Labor Department, over 90% of the increase in the wholesale finished goods price index during August was the result of higher energy prices, which rose 8.0%. The 23% jump in gasoline price was the biggest culprit. This is most likely to be reversed in September, given the drop in gasoline prices during the first two weeks of the month.
The food price index was up 0.4% after recording a 1.5% drop in July. A large part of the increase in food prices was due to the 5.9% jump in prices of fresh fruits and melons. Excluding food and energy, the core PPI rose 0.2% in August compared with a 0.1% drop in July. The 0.8% increase of the light motor vehicle index in August accounted for over fifty percent of the gain in the core PPI. The 0.7% increase of the passenger car price index also played a role in lifting the core PPI.
At the earlier stages of production, intermediate goods price index (+1.8%) and core intermediate goods price measure (+0.6%) advanced in August. However, on a year-to-year basis, the core intermediate goods price index continues to decline (see chart 4). The main take away is that whole prices do not present a threat at the present time.
