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:
Wholesale Inventories Increase in January
In January, wholesale inventories improved 0.3%, outpacing economists’ expectations of a 0.3% decline. Excluding automobile stockpiles, core wholesale inventories rose 0.2%. Driving the increase were electrical goods, motor vehicles and motor vehicle parts stockpiles. At the same time, sales at wholesalers plunged 3.1%, representing the largest drop in nearly six years. So it now would take 1.27 months for wholesalers to go through their entire inventory, up from 1.22 months in December. This was an interesting report. While wholesalers stockpiled more than expected, plunging oil prices weighed on wholesale sales. This means that wholesale inventories will likely cool for the rest of Q1. However, in general the second quarter is expected to be a stronger one for consumer spending, so I’m looking forward to the rebound.
Initial Claims for Unemployment Fall More Than Expected
For the week ending March 7, initial claims for unemployment fell to a 289,000 annual rate, 36,000 below the prior week’s 325,000 annual rate. This was a stronger number than expected; economists had expected jobless claims to decline slightly to 315,000. Meanwhile, the four-week moving average fell 3,750 to 302,250. Given last week’s strong payroll report, it’s not surprising to see that layoff activity continues to moderate downward.
Retail Sales Weaken
In February, retail sales pulled back 0.6% from January. This was worse than expected; economists had expected retail sales to be flat. For the first time since 2012, we’ve seen retail sales fall for three months in a row. Excluding auto sales, retail sales were flat in February. Excluding gas and auto sales, retail sales declined 0.2%. In the past 12 months, retail sales have risen only 1.7%; this is due to the dramatic decline of oil prices in the past few months. Deflationary pressures are weighing on retail sales, but as oil prices increase during the spring and summer months, and the weather improves, I expect retail sales to rebound.
Business Inventories Flat
In January, business inventories were flat, which exceeded economists’ expectations of a 0.2% decline. Retail inventories, which exclude automobiles, rose 0.1%. At the same time, business sales fell 2.0% in January. And at the current sales pace, it will take 1.35 months for businesses to empty their shelves, the highest inventory-to-sales ratio in five and a half years. The business inventories report reaffirmed the results from the earlier wholesale inventories report. While businesses are rebuilding their inventories, we’ll likely see this trend reverse in the next few months.
Producer Price Index (PPI) Down in February
The Producer Price Index declined 0.5% in February. This marks the fourth straight month that wholesale prices have fallen. This came as a surprise to economists, who were expecting the February PPI to rise 0.4%. A 1.6% drop in wholesale food prices, the largest such decline in two years, offset a 1.5% decline in wholesale gasoline prices. Meanwhile, the core PPI, which excludes food and energy prices, remained unchanged. Over the past 12 months, the core PPI has risen 0.7%; however, the headline PPI has pulled back 0.6%. This is the first time ever that the PPI has declined over a one-year period. Clearly, deflation is spreading, which means that the Fed cannot raise key interest rates, since it would further strengthen a soaring U.S. dollar.
That’s all I have for you this week. I’ll be in touch with the latest Portfolio Grader changes on Monday.
Have a great weekend,