Behind the Numbers
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Friday, February 15, 2019

Can We Trust the Data?

The December retail sales report was shocking, to say the least, especially after what had been reported to be the strongest holiday shopping season in four years. According to the Commerce Department’s report, retail sales fell 1.2 percent, a big miss from the estimates for a gain of 0.1 percent. The drop was the largest decline in over nine years. Only two of the 13 categories, auto dealers and building material stores, reported an increase in sales. Even more perplexing was a 3.9 percent drop for online stores, the biggest decline since 2008. Economists and analysts spent most of the day trying to make sense of the data, suggesting the drop was due to seasonal adjustments or the government shutdown, both in terms of people pulling back on their shopping and in difficulty collecting the data. What made the report most troubling was the lack of any forewarning of a slowdown in consumer spending. Many big box retailers reported robust holiday sales, and the National Retail Federation is forecasting retail sales growth between 3.8 and four percent this year. For now, I suggest putting the report in the category of “wait and see” before assuming consumers have stopped spending.

Key Indicators this Week:

Inflation – The inflation reports for January support the current pause the Federal Reserve is taking regarding interest rate changes. The CPI rate was unchanged, and PPI declined 0.1 percent for the second month in a row.  Inflation remains subdued on both the wholesale and consumer levels, with most of the softness coming from falling oil prices. Gasoline prices were down 10.1 percent from a year ago. On the wholesale side, some pressure is building in the cost of services, which continues to increase on a monthly basis. On the other hand, the price of goods fell for the fourth consecutive month. The year-over-year inflation rates dropped significantly for both CPI and PPI, 1.6 percent and 2.0 percent, respectively.

Manufacturing January’s industrial production data is another report we may have to review again before making any assumptions about a slowing economy. Industrial production, a measure of mining, factory and utility activity, fell 0.6 percent in January, the biggest drop in eight months. The unexpected decline was concentrated in the auto and defense sectors, which brought the manufacturing component down 0.9 percent. Auto production plummeted 13.9 percent, a much more severe drop even with the recent slowdown in car sales. Defense spending fell 0.6 percent, a decline that is likely related to disruptions of government contractors’ operations during the government shutdown. Capacity utilization, a measure of output, fell slightly, but remains near its recent four-year peak

Between the Numbers:

If this week’s retail sales data makes you think the consumer is closing his or her wallet or cutting up their debit card, think again. The National Retail Federation estimates we spent $20.7 billion on Valentine’s Day this year, an increase of 5.6 percent from last year. While only 51 percent of people planned to celebrate the holiday this year, the smallest number in 10 years, the cost per person is increasing. Average per capita spending is projected at $162, a new record, topping the prior high of $147 in 2016. Candy tops the list for the most preferred gift, bought by 52 percent of people, followed by cards and, lastly, flowers.

There will be no Behind the Numbers next week. Behind the Numbers will resume on March 1, 2019.

Sarina Freedland – Senior Investment Officer

Although this information has been obtained from sources we believe to be reliable, we do not guarantee its accuracy and it may be incomplete or condensed. This is for informational purposed only and is not intended as an offer or solicitation with respect to the purchase or sale of any security. All herein listed securities are subject to availability and change in price. Past performance is not indicative of future results. Changes in any assumption may have a material effect on projected results.

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