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Neither retail trade nor inflation in the U.S. surprised in April

05/16/2012 by Alex Carrick, RCD Canadian Chief Economist

There were two important U.S. data releases on May 15 – retail sales from the Census Bureau and the Consumer Price Index (CPI) from the Department of Labor.

Both reports were for April. Neither evoked great surprise.

Retail sales in the latest month were still on an upward path, albeit one with a very gentle incline (+0.1% month to month).

On a year-over-year basis, April’s result appeared much better. Versus the same month last year, current dollar retail sales were +6.4%.

History has shown that any percentage change of +5.0% or higher (y/y), when inflation is relatively restrained, provides strong support for the overall economy.

Consumer spending, which drives retail trade, accounts for 70% of America’s gross domestic product (GDP).

The +6.4% figure year-over-year takes on more significance when the price of gasoline is factored in.

For much of the past year, a hike in gas prices has contributed mightily to the dollar volume increase in retail sales. For example, in late summer and early fall of last year, gasoline prices were rocketing ahead by one-third versus their previous year levels.

Currently, however, gasoline prices are only +3.2% year over year. Furthermore, April’s month-to-month change in the cost at the pump was a virtually stagnant +0.3%.

A period of respite from ever-increasing gas bills will be very welcome by consumers.

But we’re getting ahead of ourselves. Before we delve further into the inflation results, what are some more highlights from the retail sales report?

Motor vehicle and parts sales outperformed the total retail category. They were +0.5% month to month and +8.4% year over year.

As a percentage of total retail, they have climbed back up to 18% from a low of 16% in 2009’s recession. Before being too impressed, however, consider that 10 years ago the share of total retail taken by the auto sector was 25%, or one-quarter.

The times, they have indeed changed.

Speaking of which, there was one other retail category with an out-sized year-over-year increase in dollar volume sales. After dropping to only +5.7% year over year in January – which was truly an anomaly versus double digit percentage changes prior to that – non-store retailer sales were +11.0% in April.

This category is where Internet sales can be found. For our industry, they carry a cautionary note. That’s because firms in this sub-sector of retail – except for some large warehousing operations – do not represent traditional bricks and mortar construction.

Before leaving this section, another observation is warranted. Many analysts are attributing the sideways shift (0.0% month over month) in April’s retail trade number to the good – some might say outstanding – weather earlier in the year.

Percentage changes in the first quarter may have been higher than usual due to traditional seasonal purchases being brought forward. 

Moving on to the inflation numbers, the month-to-month pattern for the All-items Consumer Price Index was flat (0.0%), dropping the year-over-year change to +2.3% from +2.7% in March.

The core inflation rate, which omits usually volatile food and energy components, was the same as for the all-items series, +2.3%.

Only a couple of major sub-components had much jump in their price levels. Apparel prices were +5.1% year over year; medical care services were +3.7%; used cars and trucks, +3.5%; and “food at home”, +3.3%.

An increase in reserves (from shale rock deposits), as well as lower demand resulting from the warmer-than-normal winter, caused piped utility-gas-service prices to fall 11.6%.

Finally, some homeowners are catching a break on energy costs.

U.S. retail sales – three months smoothed
U.S. retail sales – three months smoothed
*"Year over year" is each month versus the same month of the previous year.
Based on latest three-month averages of current dollar adjusted data (and placed in latest month).
Adjustments are for seasonal variation, holiday and trading day differences, but not for price changes.
Data source: U.S. Census Bureau (Department of Commerce).
Chart: Reed Construction Data - CanaData.
U.S. retail sales – three months smoothed
U.S. retail sales – three months smoothed
Data source: U.S. Census Bureau (Department of Commerce).
Chart: Reed Construction Data - CanaData.
U.S. inflation: all items (CPI-U) vs all items less food and energy
(not seasonally adjusted)
U.S. inflation: all items (CPI-U) vs all items less food and energy
In the U.S., the change in the energy sub-component index was +0.9% year over year in April 2012. Gasoline was +3.2% year over year.

The U.S. figure (CPI-U) is the All Items Consumer Price Index for All Urban Consumers.
Data source: U.S. Bureau of Labor Statistics (Department of Labor).
Chart: Reed Construction Data - CanaData.


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