October Retail Sales -- Significantly Subdued

By: Paul Kasriel | Thu, Nov 15, 2007
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Retail sales rose 0.2% in October, following a revised 0.7% gain in the prior month. Excluding autos and gasoline, retails sales edged up 0.1% during October after a 0.2% increase in the prior month. The component of retail sales which excludes autos, gas, and building materials, often used to gauge underlying strength of consumer spending, held steady in October following a 0.2% gain in the prior month. The August reading (-0.4% now vs. 0.0 original estimate) of this measure shows a downward revision, which points to a downward revision of consumer spending in the third quarter. Each of these measures sends a convincing message of soft retail sales.

Chart 1

From the details of the report, auto sales rose 0.2%, gasoline purchases moved up 0.8%, food sales increased 0.4%, and sales of building materials advanced 0.6%. The jump in building materials purchases is suspect given the weakness in the housing market. The drop in furniture (-0.1%) and general merchandise (-0.9%) and the lackluster reading of apparel sales (0.1%) were the pockets of weakness. The quarterly trajectory appears extremely weak (see table below) implying that consumer spending is most likely to be barely positive in the fourth quarter vs. a 3.0% increase in the third quarter.


Wholesale Core Prices Show Small Upward Trend

The Producer Price Index (PPI) for Finished Goods moved up 0.1% in October compared with a 1.1% jump in September. The 1.0% increase in food prices after a 1.5% gain in September was the largest increase among the various components of the wholesale price index. The energy price index fell 0.8% after a sharp 4.1% gain in September. Based on quotes for November, the energy price index should once again post a large increase. In the twelve months ended October, the PPI for finished goods has risen 6.1%, reflecting a 16.6% gain in energy prices and a 7.1% increase in the food price index.

Excluding food and energy, the core PPI held steady in October, putting the year-to-year increase at 2.5%. On a year-to-year basis, the core PPI of finished goods has moved up from a low of 1.6% in April 2007. Higher prices for passenger cars (+1.0%), cigarettes (+0.9%), civilian aircraft (+0.5%), household furniture (+0.3%), and book publishing (+0.5%) were offset by price decreases for light motor trucks (-2.7%), computers (-1.3%), newspapers (-1.1%), alcoholic beverages (-0.30%), and communication and related equipment (-0.1%).

Chart 2

Pipeline price pressures appear to be mild at the intermediate stage. The overall intermediate goods price index climbed up 0.1% in October. The intermediate goods prices index excluding food and energy edged up 0.1%, taking the year-to-year increase to 1.93% in October, following a low of 1.56% in August. The crude goods price index increased 2.4% and the core crude good price index was up 1.4%.

Chart 3



Paul Kasriel

Author: Paul Kasriel

Paul L. Kasriel
Director of Economic Research
The Northern Trust Company
Economic Research Department
Positive Economic Commentary
"The economics of what is, rather than what you might like it to be."
50 South LaSalle Street, Chicago, Illinois 60675

Paul Kasriel

Paul joined the economic research unit of The Northern Trust Company in 1986 as Vice President and Economist, being named Senior Vice President and Director of Economic Research in 2000. His economic and interest rate forecasts are used both internally and by clients. The accuracy of the Economic Research Department's forecasts has consistently been highly-ranked in the Blue Chip survey of about 50 forecasters over the years. To that point, Paul received the prestigious 2006 Lawrence R. Klein Award for having the most accurate economic forecast among the Blue Chip survey participants for the years 2002 through 2005. The accuracy of Paul's 2008 economic forecast was ranked in the top five of The Wall Street Journal survey panel of economists. In January 2009, The Wall Street Journal and Forbes cited Paul as one of the few who identified early on the formation of the housing bubble and foresaw the economic and financial market havoc that would ensue after the bubble inevitably burst. Through written commentaries containing his straightforward and often nonconsensus analysis of economic and financial market issues, Paul has developed a loyal following in the financial community. The Northern's economic website was listed as one of the top ten most interesting by The Wall Street Journal. Paul is the co-author of a book entitled Seven Indicators That Move Markets.

Paul began his career as a research economist at the Federal Reserve Bank of Chicago. He has taught courses in finance at the DePaul University Kellstadt Graduate School of Business and at the Northwestern University Kellogg Graduate School of Management. Paul serves on the Economic Advisory Committee of the American Bankers Association.

The opinions expressed herein are those of the author and do not necessarily represent the views of The Northern Trust Company. The information herein is based on sources which The Northern Trust Company believes to be reliable, but we cannot warrant its accuracy or completeness. Such information is subject to change and is not intended to influence your investment decisions.

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