Retail Sales and PPI Release Today
The Retail Sales report for October was released today together with the PPI.
First, the data.
Start with Auto vehicles and parts. This represents 21% of the total number and it grew 10% YoY. The growth was due to major discounting to boost sales. If we net out Autos, retail sales were up 2.4% or just under the rate of inflation (the report does NOT adjust for prices).
Gas prices play a more interesting role. Here are the key basic data points
Oct vs Sept sales dropped ~$1.5B
Oct 2006 vs 2005 sales rose $16.3B
Gas prices alone dropped $2B from Sept to Oct, reflecting lower October fuel prices. On an annual basis, gas sales dropped ~$4.4B last year. Recall that the Katrina impact last year was to reduce fuel consumption across several states.
In effect, we have auto sales artificially boosting the numbers and Oil prices bringing them down. Adjusting for these, we get:
Oct vs Sept sales dropped ~$1B
Oct 2006 vs 2005 sales rose $13.8B
A more normalized view (excluding gas and auto) shows that we have a flattening sales picture and that sales growth YoY is 4%. By way of comparison, for the total 10 months to date, Sales (excluding autos & gas) grew 5.55%.
If we net out inflation, the growth is barely above 1%.
On a year over year basis, everything looks sound except for gas and general merchandise (Walmart).
This fits in completely with my overall view: still growing but at a slower rate. Also, the odds are that they will revise downward as they have done each month for the last 6 months.
So with growth moderating, what does that mean for interest rates? Depends on inflation. A 4% retail sales growth when inflation is 4% really means flat growth. A 4% retail sales growth when inflation is 2.5% is growth.
CPI gets released Thursday. Last month, a significant easing in CPI was met with a great sigh of relief.
The PPI today showed a large drop (-1.6%), even deeper than last month. Again, a lot of this is oil related. If you remove oil and food, the drop is much less but still present. In other words, producers are not showing inflation at this time. Having said that, it is worth noting that prices are easing for raw materials - steel, copper, lumber, granite and so forth.
Typically, prices drop for three reasons: demand is slowing, supply his rising or input costs are moderating. Certainly, with oil prices falling, production costs are lower. I think th ereal culprit is that demand is not rising as fast and that supply is catching up.
For raw materials and companies dependent on raw materials, this is not a sign of future growth potential. I would see consolidation on the near-term horizon
First, the data.
- Sales were down 0.2% versus September
- September Sales versus August were also revised down from -0.4% to -0.8%
- Sales were up 4.5% versus October 2005
- Auto and parts sales were up a blistering 10.1% over last year
Start with Auto vehicles and parts. This represents 21% of the total number and it grew 10% YoY. The growth was due to major discounting to boost sales. If we net out Autos, retail sales were up 2.4% or just under the rate of inflation (the report does NOT adjust for prices).
Gas prices play a more interesting role. Here are the key basic data points
Oct vs Sept sales dropped ~$1.5B
Oct 2006 vs 2005 sales rose $16.3B
Gas prices alone dropped $2B from Sept to Oct, reflecting lower October fuel prices. On an annual basis, gas sales dropped ~$4.4B last year. Recall that the Katrina impact last year was to reduce fuel consumption across several states.
In effect, we have auto sales artificially boosting the numbers and Oil prices bringing them down. Adjusting for these, we get:
Oct vs Sept sales dropped ~$1B
Oct 2006 vs 2005 sales rose $13.8B
A more normalized view (excluding gas and auto) shows that we have a flattening sales picture and that sales growth YoY is 4%. By way of comparison, for the total 10 months to date, Sales (excluding autos & gas) grew 5.55%.
If we net out inflation, the growth is barely above 1%.
On a year over year basis, everything looks sound except for gas and general merchandise (Walmart).
This fits in completely with my overall view: still growing but at a slower rate. Also, the odds are that they will revise downward as they have done each month for the last 6 months.
So with growth moderating, what does that mean for interest rates? Depends on inflation. A 4% retail sales growth when inflation is 4% really means flat growth. A 4% retail sales growth when inflation is 2.5% is growth.
CPI gets released Thursday. Last month, a significant easing in CPI was met with a great sigh of relief.
The PPI today showed a large drop (-1.6%), even deeper than last month. Again, a lot of this is oil related. If you remove oil and food, the drop is much less but still present. In other words, producers are not showing inflation at this time. Having said that, it is worth noting that prices are easing for raw materials - steel, copper, lumber, granite and so forth.
Typically, prices drop for three reasons: demand is slowing, supply his rising or input costs are moderating. Certainly, with oil prices falling, production costs are lower. I think th ereal culprit is that demand is not rising as fast and that supply is catching up.
For raw materials and companies dependent on raw materials, this is not a sign of future growth potential. I would see consolidation on the near-term horizon
posted by Andrew at
9:56 AM
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