The Inside Scoop On The Economy's Next Big Shift

It’s Friday and that means it’s time to review the latest economic data and identify which pockets of the economy are heating up and which are slowing down. Don’t worry about catching every headline and every report throughout the week—I recap all of the most important news impacting your wealth right here every Friday. Let’s take a look at this week’s big headlines:

Wholesalers and Businesses Restock Their Shelves After Lean Winter

In April, wholesalers increased their stockpiles by 1.1% to $530.6 billion. This was significantly higher than expected; economists had forecast a 0.2% rise. Excluding autos, wholesale inventories still advanced 1.1%. This is the number that is used in calculating second-quarter GDP. Meanwhile, sales at wholesalers jumped 1.3%. At the current sales pace, it still would take about 1.18 months to clear shelves. This marks the tenth month in a row that inventories have risen. If you remember back to March, wholesale inventories also increased 1.1% then, so a potentially powerful trend has begun. After the lean winter, economists expect wholesalers to continue restocking their shelves through the end of the second quarter.

In April businesses also added 0.6% to their inventories, above economists’ estimates of a 0.3% gain. This also represents the largest increase in six month. Retail inventories excluding autos ticked up 0.1%. Businesses also reported that sales advanced 0.7% in April. At the current sales pace it would take 1.29 months for the current inventories to be used up, unchanged from last month. The business inventories report largely mirrored what we found in the wholesale report. The general expectation for businesses thus summer is that sales will also rebound and keep inventory turnover high.

Positive Trends for Layoff Activity and Job Openings

For the week ending June 7, initial claims for unemployment rebounded somewhat to a 317,000 annual rate, 4,000 higher than the prior week. Even so, this was a less dramatic rise than anticipated; economists were calling for a 320,000 annual rate. Meanwhile, the four-week moving average rose by 4,750 to 315,250.

This was a solid report, but the biggest news on the jobs front came from the Labor Department’s job openings report. In April the number of job offerings rose to 4.46 million, a 17% increase over April 2013 and the highest level since September 2007! Despite last week’s lackluster payroll report, the fact that the number of job offerings are rising is still a very good sign that the labor market is steadily improving.

Retailers Whiff It in May

In May, retail sales climbed 0.3%, well below economists’ consensus estimate of a 0.7% rise. However, April’s retail sales were revised up to a 0.5% gain, which was a massive revision for the Commerce Department’s initial estimate of only a 0.1% gain. Vehicle sales rose a very robust 1.4% in May and are especially strong. Home improvement sales rose 1.1% in May, which is indicative that consumers are busy upgrading their homes and gardens. Combined, April and May are providing a positive picture of retail sales, despite erratic month-to-month gains relative to economists’ consensus estimates. In the past three months, overall retail sales are up 4.3% compared with the same period a year ago.

Wholesale Inflation Is in the Cards

In May, the Producer Price Index (PPI) declined 0.2%. This was a big surprise, since economists were expecting a 0.1% rise. Excluding food and energy prices, the core PPI was unchanged. Wholesale energy prices actually declined in May due to declining wholesale gasoline and electric prices. These results were surprising but we’re already starting to see a reversal in some of these changes. First, energy prices are now rising in June due to lower than expected natural gas inventories and the unfolding chaos in Iraq. Furthermore, since the PPI rose in March and April by 0.6% and 0.5% respectively, there is little doubt that inflation is brewing.

Have a great weekend,

Sincerely,

signed: Louis Navellier

Louis Navellier

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