U.S. Retail Sales Decline In September After Auto-Led August Gain; Underlying Trend Firms

The DIHK survey, a poling of over 25000 firms by the German chambers of industry and commerce, is not conducted in Q3. So the fourth quarter’s -10 reading compares to the -17 reading from Q2. It is a net balance of opinion diffusion index. A strong improvement in existing conditions is indicated, but declines persist. DIHK itself pointed to the role in temporary government stimulus in boosting the survey and muted its optimism with expectations for more modest improvements in the index for the quarter ahead

The index has climbed up from the 14th percentile of its range in 2009-Q2 to stand in the 25th percentile in Q4. Business expectations are sharply higher at a raw reading of zero up from -27 in Q2. The range standing for that reading is up to a respectable 58th percent of the range from a low 13th percentile in Q2. Export expectations are up even more strongly to a raw reading of +7 from a Q2 reading of -37, pushing the percentile standing up to its 55th percentile from 1.3% in 2009 Q2. These sorts of progressions are in line with much of the data that have been reported that have showed foreign orders to be picking up, although some recent German export figures were more disappointing; that slowdown is not corroborated here.

As to investment, the Q2 percentile standing was the worst in the history of the survey, a history that extends back to Q4 1991. The improved standing to a still-weak 27th percentile on a raw reading of -17 nonetheless is sharply up from -30 in Q2. Still we can see that investment demands are lagging. Hiring intentions occupy a sort of middle ground at a raw reading of -15; conditions are much improved from Q2’s reading at -25. Still more cutting is indicated. The percentile standing has been boosted to its 38th percentile, but that is still weak. Clearly much more improvement will bee needed to stoke job growth and just to keep the prospect of more cuts at bay.

Weakness in the U.S. dollar is pushing up non-oil import prices. Following the strength in oil prices earlier this year, now non-oil prices have firmed. U.S. import prices last month ticked up the expected 0.1% after jumps between 1.0% and 3.0% during three of the prior four months.

The latest report showed that non-oil import prices rose 0.4%, which was the strongest monthly increase since July of last year. On a three-month basis, these prices have risen at a 1.9% annual rate after declining at a 13.6% rate as of last December. (During the last ten years, there has been a negative 81% correlation between the nominal trade-weighted exchange value of the US dollar vs. major currencies and the y/y change in non-oil import prices.)

Import prices break down as follows: Food prices added 0.4% to a 1.3% August increase (-5.0% y/y). Capital goods prices broke from weakness with a 0.1% uptick which raised the three-month change to 0.4% following a 3.4% rate of decline in June. Prices for nonauto consumer goods also rose 0.1% (-1.0% y/y) and brought the three-month change to -1.1% from its weakest reading of -2.6% in January. Durable consumer goods prices were unchanged (-1.4% y/y) after two months of slight decline. Household goods rose slightly (-1.6% y/y) and furniture prices jumped 0.9% (-1.0% y/y). Apparel prices were unchanged for the second month (-1.1% y/y) but the three-month change improved to -0.4% from -4.3% six months ago.

The recent gain in petroleum prices took a breather last month and fell 1.1% after sharp increases during six of the prior seven months. This month, however, crude oil prices have found renewed strength and were up to $74.15 per barrel yesterday from a September average of $69.46.

Total export prices reversed some of their earlier strengthening with a fall of 0.3%. The drop was led by a 2.8% (-16.6% y/y) decline in agricultural prices. Nonagricultural export prices were unchanged and down 4.4% y/y.

The import and export price series can be found in Haver's USECON database. Detailed figures are available in the USINT database.

Why hold inventories if they're loosing value and the demand outlook is uncertain? These two questions are behind the decumulation which continued through August. Business inventories fell another 1.5% which exceeded expectations for a 0.9% drop. The drop was pervasive amongst businesses and the 14.9% three-month rate of decline is a record.

Retail inventories fell a hefty 2.3% during August. That was led by a 7.9% (-31.1% y/y) drop in auto inventories followed by a 0.3% (-6.4% y/y) shrinkage in nonauto inventories. Furniture inventories (-12.3% y/y) continued down as did clothing inventories (-8.7% y/y). General merchandise inventories posted an uptick but they still were off 4.1% y/y and building materials stores shed 0.6% of inventories (-9.0% y/y. Factory inventories fell 0.8% and at an accelerated 11.5% y/y. Wholesale inventories were off 1.3% and, excluding oil, wholesale inventories fell 1.5% (-15.0% y/y).

Businesses' success in slashing inventories has kept up with recent weakness in sales. As a result, the inventory-to-sales ratio for total business fell to its cycle low of 1.33 versus a high of 1.46 in January. The latest was the lowest since last September.

The business sales and inventory data are available in Haver's USECON database.

Disagreement About The Inflation Outlook from the Federal Reserve Bank of San Francisco is available here