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US economic indicators

March retail activity is likely to have remained weak apart from gasoline station sales

Mon, Apr 14 2008, 11:20 GMT
by BHF-Bank Economics Department

BHF-Bank

• Higher energy prices will have raised March inflation data significantly

• First manufacturing surveys will probably still indicate contraction in April

• Industrial production and leading indicators are showing ongoing weakness in March

Retail sales went down by 0.6% mom in February, mainly due to dropping auto sales and ongoing weakness in sales of building materials and furniture. Sales at gasoline stations fell by 1.0% mom, but due to the rise in gasoline prices, we expect them to have rebounded sharply in March. Shopping for Easter could also have contributed positively. Thus nominal retail sales could have risen by 0.2% mom in March, even though consumer confidence fell again. However, ex gasoline sales could have declined by about 0.5% mom. Automobiles are likely to have made a negative contribution again, given the deterioration in domestic vehicle sales. We forecast that retail sales ex autos will have risen by 0.3% mom due to price increases.

Business inventories could have increased by 0.6% mom in February. We already know that wholesale inventories went up sharply by 1.1% mom, and factory inventories rose by 0.5% mom. Our forecast assumes a similar increase in retail inventories. Business sales will probably not have gone up as much, leading to a slight rise in the inventories-to-sales ratio to 1.26.

Import prices went up sharply by 2.8% mom in March, particularly due to petroleum prices. Higher energy prices are also likely to have raised producer and consumer price levels markedly, and food prices could have continued to rise too: we expect producer prices (PPI) to have increased by at least 0.8% mom, but due to a base effect, the annual rate would nevertheless decline from 6.4% to 6.2%. Core PPI might only have gone up by 0.2% mom. The surge in gasoline and other energy prices combined with higher food prices might have pushed up consumer prices (CPI) by 0.5% mom in February. As medical care costs are also likely to have increased noticeably, core CPI will have risen by at least 0.2% mom, and the annual rate could have reached 2.5%.

We forecast that the NAHB index will remain at 20 in April for the third consecutive month. It seems to have stabilized at this low level, but future sales expectations declined in February and March. Given that building permits are now noticeably lower than housing starts, we expect the latter to have fallen markedly again in March, from 1065k to 1000k. Building permits might not have dropped as sharply; they could have fallen from 984k to 975k.

The New York Empire manufacturing index plummeted from –11.7 to a record low of –22.2 in February. Given the deterioration in small business optimism and the noticeable decline in consumer confidence, we are not expecting the New York Empire manufacturing index to have rebounded. We only forecast a slight improvement to –20.0 in April. The Philadelphia Fed index, which had risen a bit from –24.0 to –17.4 in March, will probably fall back and could thus be on the same low level as the New York Empire index.

As the graph shows, leading indicators run ahead of industrial production, and their negative course signals a further drop in production. In addition, the manufacturing surveys have all remained below the expansion threshold. Utility output, which fell sharply in February, will probably have gone down somewhat again. We forecast that industrial production will have fallen slightly by 0.1% mom in March, as aggregate working hours in manufacturing remained stable. The capacity utilization rate might have declined slightly to 80.3%, in line with the long-term average since 1980.

After having fallen for five consecutive months, leading indicators could have remained unchanged in March. Supplier deliveries and real M2 could have made positive contributions, but most of the other components, especially jobless claims, the stock market and consumer expectations, will have had a negative impact. The annualised 6-month rate will fall back from –3.0% to –3.5% – a clear signal of recession. It should be noted that the leading indicators report will incorporate annual benchmark revisions.

Initial jobless claims went down sharply in the week ending 5 April, by 53k to 357k, after having risen by almost 40k the week before. The present fluctuations might be partly due to seasonal adjustment problems because the Easter holidays were so early. Thus the 4-week moving average, which indicates an upward trend, appears to be a better yardstick. We expect initial jobless claims to have increased to 380k in the week ending 12 April, slightly above the latest 4-week moving average.

On Wednesday, the Fed will present its latest Beige Book with regional economic reports. Just like the February edition, it will state that economic growth has slowed, and activity will be described as modest, subdued, weak or sluggish. The focus will be on the further deterioration in labour market conditions. But the Beige Book will also report about upward pressure in materials and energy prices; wage pressures will probably again be described as subdued.

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Published on  Mon, Apr 14 2008, 11:56 GMT

Archive

• Leading indicators (July): a more marked decline than in June
  Published On Mon, Aug 18 2008, 08:54 GMT
• Industrial production (July): slower than June
  Published On Mon, Aug 11 2008, 11:28 GMT
• PCE core deflator (June): slightly higher, above the Fed's comfort zone
  Published On Tue, Aug 5 2008, 07:18 GMT
• Consumer confidence likely to have eased in July
  Published On Mon, Jul 28 2008, 10:01 GMT
• Durable goods orders: soft in June, transportation orders slowed
  Published On Mon, Jul 21 2008, 10:36 GMT

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