The U.S. Economy (In Less Than 500 Words)

I’m a numbers guy, so I get a real kick out of reviewing the latest economic data and identifying which pockets of the economy are heating up and which are slowing down. However, with breaking economic news coming out nearly every day, I understand that it can be a hassle keeping up with each and every report. So every Friday in this blog I hit the past week’s highlights and provide my take on the latest economic trends. Let’s take a look at this week’s big headlines:

#1—Inventories Brighten Picture For Q2 GDP

Wholesale Inventories

In April, stockpiles held by wholesalers rose 0.2% from March. This was largely in line with economist estimates. However, excluding stockpiles of automobiles, inventories remained flat. Meanwhile, sales at wholesales rose 0.5%. At the current sales pace wholesalers have a 1.21 month supply—down from the 1.22 month ratio we saw in March. Wholesale inventories have now risen for two consecutive months. Wholesale inventories have also advanced 4.1% since April 2012. This is significant because inventories added more than a half a percentage point to first-quarter economic growth. With GDP grow expected to slow to a 2% pace, I’ll take any boost we can get from wholesale inventories.

Business Inventories

In April, overall business inventories climbed 0.3%. Economists had expected a 0.2% gain so this topped estimates. This also represents a reversal from the revised 0.1% reduction in stockpiles we saw in March. Meanwhile, sales fell 0.1%; this is the second month in a row that they’ve fallen. Notably, the inventory-to-sales ratio rose to 1.31 months, the highest since October 2009. This complements the positive results we saw in the earlier wholesale inventories report, which is good news. However, with the inventory-to-sales ratio so high, we’ll probably see businesses ease off on production to clear out their shelves a bit.

#2—Auto Sales Lift Overall Retail Performance

In April, retail sales advanced 0.6%. These results represent the fastest pace since February and came well above expectations of a 0.1% gain. The outperformance is mostly thanks to a 1.8% jump in auto sales—the largest increase in six months. Excluding sales of autos, gas and building materials—which are all volatile metrics—core retail sales advanced 0.3%. This also topped the 0.1% consensus estimate. Just as with inventories, consumer spending has an outsized impact on the economy. In fact, consumer spending is the main culprit behind the expected deceleration in second-quarter economic growth. So I hope that retail sales—and overall consumer spending—will continue to outperform expectations.

#3—Good News For the Fed: Inflation Remains Tame At Wholesale Level

In May, wholesale prices climbed 0.5%. Economists had expected the PPI to rise just 0.2%. The larger-than-expected rise is partly due to a 1.5% jump in gas costs as well as a 0.6% rise in food costs. However, excluding these more volatile prices, wholesale prices remained largely flat. Economists had expected core PPI to rise 0.2%. The fact that core PPI remains largely unchanged means that the Fed won’t likely curtail it’s easy money policy anytime soon.

#4—Stronger Jobs Trend Continues With Drop in Jobless Claims

New jobless claims dropped 12,000 to an annual rate of 334,000. This outperformed economists’ expectations; the consensus called for claims to rise to a 350,000 annual pace. Meanwhile, the four-week moving average dropped 7,250 to 342,250. With this latest pullback, jobless claims are now near five-year lows. While these aren’t blowout results, lower layoff activity coupled with the modest uptick in hiring are good signs for the jobs recovery.

Have a nice weekend,

Signed Louis Navellier

Louis Navellier

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