Gasoline Prices Decline AsEconomic Momentum Fades Further

The energy markets continued to reflect the recent and developing worry that forward momentum in the U.S. economy has faded. Yesterday, the cash market price for a gallon of regular gasoline fell to $1.71 versus the daily high of $2.04 reached in the middle of June. For the full week, the average price fell to $1.84. Retail gas prices have followed these declines, but to a lesser extent. The pump price for regular gasoline fell last week to an average $2.61 per gallon, down eight cents from the high. Nevertheless prices remained up by one dollar from the December low and were at the highest level since late-October. The figures are reported by the U.S. Department of Energy and can be found in Haver's WEEKLY & DAILY databases.

Lower crude oil prices have led the decline in refined product prices. Yesterday the one-month futures price for light sweet crude oil dropped to $64.05 from an average $69.36 last week. Prices had reached a daily high of $72.68.

The weakness in energy prices is against the backdrop of soft demand. The ongoing recession reduced the demand for motor gasoline by 1.8% y/y during the last four weeks. There is good news, however. The rate of decline has moderated from the 4.8% shortfall this past autumn. Demand for distillate also is off sharply though residual fuel oil demand has moved higher. Finally, oil remains plentiful as evidenced by a 13.5% y/y rise in inventories of crude oil & petroleum products. Inventories of gasoline are flat y/y but crude oil inventories less the SPR are up by 16.8%. The figures on crude oil production and inventories are available in Haver's OILWKLY database.

Finally, natural gas prices did recover during the last two weeks, but the trend since April has definitely been sideways. Last week's average price of $3.69 per mmbtu (-72.1% y/y) was down from a recent high of $4.02. Current prices are down by two-thirds from the high reached in early-July of $13.19/mmbtu.

Time variation in the inflation passthrough of energy prices from the Federal Reserve Bank of Kansas City can be found here.

The Fourth of July seems to have prompted consumer spending this year. During the latest week, chain store sales ticked up all of 0.1%. That, however, was enough to pull the y/y change up to +0.5% after a y/y gain of 0.6% last week. Maybe the consumer is finding his footing? These are the first positive comparisons since late last year. But the consumer definitely isn't spending with wild abandonee. The latest gains fall well short of the three-to-seven percent growth rates logged during the last several years.

During the last ten years there has been a 69% correlation between the year-to-year growth in chain store sales and the growth in general merchandise sales. The weekly figures are available in Haver's SURVEYW database.

The ICSC-Goldman Sachs retail chain-store sales index is constructed using the same-store sales (stores open for one year) reported by 78 stores of seven retailers: Dayton Hudson, Federated, Kmart, May, J.C. Penney, Sears and Wal-Mart.

The volume of new orders in German Manufacturing rose 4.4% in May after a small rise of 0.1% in April and a 3.7% rise in March.  The three month rise has brought the level of new orders to 84.5 (2005=100).  This is still 33% below the peak of 126.1 recorded in November, 2007.  Sales of German Manufacturing and Mining product rose 4.5% in May after a decline of 2.0% in April and a 1.6% rise in March. Sales are now at an index level of 91.8, 21% below the peak of 115.7 reached in January, 2008.  To put the recent improvements in perspective, the volume of new orders and sales over the 8 plus years are shown in the first chart.

Much of the improvement in both orders and sales was due to a jump in foreign sales.  While domestic new orders rose 3.9% in May, new orders from the Euro Area countries rose, 5.2% and from the non Euro Area countries, 8.2%.  The comparable figures for sales were 2.9%, 3.9% and 9.4%.   The month to month percent changes in domestic new orders, Euro Area countries new orders and Non Euro Area countries new orders are shown in the second chart.

Signs of recovery in new orders and sales in the manufacturing sector are particularly important for Germany as manufacturing plays such an important role in the German economy.  Manufacturing accounts for about 25% of Germany's GDP in contrast to the United States where manufacturing accounts for about 14% of the economy.