U.S. Retail Sales Surge as Consumers Rev Up Growth
Retail sales advanced 1.1% in March from the prior month, the best gain in a year and a half, the Commerce Department said Monday. The improvement, along with an upward revision of February’s sales to a 0.7% gain, served as confirmation of shoppers shaking off the winter blues that led sales to plunge in December and January.
Still, the March gain pushed first-quarter retail sales only barely above the fourth-quarter level. (…)
Monday’s report showed broad-based improvement in retail sales. Consumers spent more at big-box stores, in restaurants and on the Internet. Outlays at building and gardening suppliers rose 1.8% from February. Furniture-store sales were up 1%. (…)
Auto sales rose 3.4% from the previous month to lead the overall gain. (…)
Forecasters at Macroeconomic Advisers project growth in U.S. gross domestic product will slow sharply in the first quarter to a 0.5% pace. But the firm anticipates second-quarter growth to blast ahead to a 3.8% rate. Still, that averages to 2.2% pace of growth in the year’s first half.
Doug Short tracks core retail sales:
BloombergBriefs is not impressed:
While the March rebound in spending is impressive, household consumption in the first quarter should expand at a subdued 2 percent rate. Moreover, the underlying detail of the data does little to suggest a breakout above the three-year trend in personal consumption of 2.4 percent. Outside of the rebound in auto sales, growth revolved around weather sensitive categories such as building materials, which increased 1.8 percent. Demand for general merchandise expanded at a 1.9 percent rate and apparel increased 1 percent.
The February upward revisions to the top line estimates, to 0.7 percent from the initial 0.3 percent, indicate that the release of pent-up demand in the wake of weather-related weakness in spending has probably run its course.
If one adjusts the data for inflation and population growth, the trend in retail sales remains well below pre-recession levels. On a three-month annualized pace, sales excluding gasoline are down 0.1 percent, which is more indicative of the true financial shape of the average U.S. household. Whether one looks at a deflated trend in personal consumption or retail sales, it is evident that U.S. households are still in the process of adjusting to the new realities of the economy.
The causes of this are straightforward. Household deleveraging, although late in the process, has not yet run its course. Meanwhile, income growth is insufficient to support a sustainable move in consumption back toward the pre-crisis trend and the thawing in credit markets has not spread beyond large firms and the two upper quintiles of income earners. The bottom three quintiles of income earners, which comprise 60 percent of the population and are responsible for 40 percent of total consumption, are still in the process of adjusting to the reduction in food stamps and emergency unemployment benefits that occurred at the end of 2013. While the increase in the labor force participation rate in the March jobs report was encouraging – it means some of those who lost unemployment benefits are probably rejoining the workforce – this process of adjustment will probably continue to act as a net drag on spending.
INFLATION WATCH
Consumer Price Index rises by 0.1%
- Mar. Consumer Price Index +0.2% vs. +0.1% consensus, +0.1% prior.
- Core CPI +0.2% vs. +0.1% expected, +0.1% prior
Nothing too scary, yet. Still in the 1.5-2.0% range but ISI’s Ed Hyman is joining my camp of watchers. After noting Friday’s strong PPI, Ed now says that inflation has bottomed. He is worried by trends in average hourly earnings and is pondering the actual amount of labor slack.
Cass/INTTRA Ocean Freight Indexes Report
Export container volumes were 18.6 percent lower than last March, and were at the lowest level for March since our index series began in 2010. Exports increased to 19 of our top 25 trading partners, but the rise was tempered by yet another decline in exports to China.
March imports were higher than in March of 2013 (by 3.3%), but lower than 2011 and 2012 levels. (Cass)
Housing Trouble Grows in China Overbuilding by Chinese real-estate developers has left many of the country’s smaller cities with a glut of apartments for sale, driving down prices and posing an economic threat.
(…) Data in some of these smaller cities is scarce. But in 100 cities tracked by Nomura HoldingsInc., 42% of those classified as Tier 3 and Tier 4 saw housing prices decline in March from February. Home construction in such cities is racing well ahead of population growth, says Beijing research firm Gavekal Dragonomics, as developers continue to build new projects without buyers. (…)
Yet even with market strength holding up in the most prominent cities, the overall value of Chinese housing sold in the first two months of 2014 declined 5% from a year earlier, government statistics show. Private-sector data indicate the decline continued in March. (…)
The construction, sale and outfitting of apartments accounted for 23% of China’s gross domestic product in 2013, Moody’s MCO +1.79% Analytics calculates. That is up steeply from 10% in 2006 and is higher than American housing’s share of GDP reached during the height of the U.S. housing boom in 2006, Moody’s says. (…)
The finances of some cities and developers are being affected. China’s local governments depend on land sales to developers for about 40% of their revenue. Now those sales are bringing in less cash. (…)
As developers grow short of money, some are using apartments instead of cash to pay their bills to construction companies. Anne Stevenson-Yang, research director at J Capital Research in Beijing, who crisscrosses China checking out property developments, sums up the real-estate market in China’s smaller cities “an incredible house of cards.” (…)
Take a drive through China’s third- and fourth-tier cities and these issues are all too visible. Many cities are ringed by row after row of empty apartment buildings that reach 20 stories into the sky. At night, they are dark save for blinking red lights on top to warn airplanes.
(…) over the past few years, building has proceeded at such a blistering pace that Nicole Wong, a real-estate analyst in Hong Kong for CLSA, figures the pace of construction in third- and fourth-tier cities needs to fall by half between 2013 and 2020 to get supply and demand somewhat back in balance. (…)
European Companies Hit by Exchange Rates A handful of big European companies warned that exchange rates will continue to weigh on performance, another challenge for companies still dealing with weak global growth
Robert Arnott: A Better Mousetrap?
Good Consuelo Mack interview on an important topic. Arnott is totally right.
Is there such a thing as a better mouse trap? This week’s Financial Thought Leader guest has created an alternative to traditional index funds. Instead of being based on market capitalization or stock price, his Fundamental Index® approach measures fundamentals such as sales, profits, and dividends to determine the weight securities have in his indexes. Research Affiliates Chairman and CEO Robert Arnott explains why fundamentals can make a big difference.