U.S. Retail Sales Rise As CoreSales Improve Again

Consumers seem to be gaining back the inclination to spend. Retail sales last month rose 1.4% after a 2.3% September decline that was deeper than reported initially. A 0.9% October gain was the Consensus expectation. The increase improved the y/y change in sales to -1.7% from declines of roughly 10% earlier this year. Moreover, spending on "core" retail sales has improved. Month-to-month changes in overall sales in recent months have been quite volatile due to auto sales promotions and rising gasoline prices. Aside from these distortions, gains in consumer spending have been steady during the last three months and y/y growth also improved. The retail sales data are available in Haver's USECON database.

Perhaps the recent, moderate turnaround in final demand evident in the economy has begun to affect business' inclination to shed inventory. Or maybe there's nothing left on the lot, in the warehouse or on the shelf to let go. Either way, business inventories slipped just 0.4% during September which was one-third of the monthly decumulation averaged back to October of last year. The decline also fell short of Consensus expectations for a 0.7% drop.

The overall slowdown was caused by a 0.6% increase in retail inventories, the first gain since last July. That increase resulted from a 3.8% (-27.9% y/y) rise in auto inventories which also was the first since July of last year. In contrast, the monthly rate of decline in nonauto inventories continued at 0.6% (-7.5% y/y). Furniture inventories increased 0.1% (-12.5% y/y) but clothing inventories fell a sharp 1.7% (-10.8% y/y). General merchandise inventories fell 0.4% and were off 6.3% y/y while building materials stores slipped just 0.1% (-9.6% y/y). Factory inventories fell a hard 1.0%. Meanwhile, wholesale inventories were off 0.9% and the y/y decline reached a nadir of 15.0%. Excluding oil, wholesale inventories fell 0.9% and the 15.4% rate of decline also was a new low.

Despite a possible interest in slowing the rate of inventory cutbacks, the inventory-to-sales ratio for total business held at the cycle low of 1.32 versus a high of 1.46 in January. The latest was the lowest since last September. In the retail sector the ratio moved higher as a result of the auto inventory rise, but at 1.42 it still was the second lowest of the cycle. For manufacturers and wholesalers, the ratio fell to new cycle lows.

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

The Behavior of Household and Business Investment over the Business Cycle from the Federal Reserve Bank of Richmond can be found here.

The Federal Reserve Bank of New York reported that its November Empire State Factory Index of General Business Conditions slipped to 23.51 during November. Nevertheless, that level still remained near the highest level since 2004. The latest reading compares to sharply negative levels this past winter and suggests positive growth in factory sector activity. The latest level fell short of Consensus expectations for a reading of 30.0.

The figure is a diffusion index. Since the series' inception in 2001, there has been a 75% correlation between its level and the three-month change in U.S. factory sector industrial production. Like the Philadelphia Fed Index of General Business Conditions, the Empire State Business Conditions Index reflects answers to independent survey questions; it is not a weighted combination of the components. The series dates back only to 2001.

The new orders component fell to 16.66 from its October high. The shipments index also fell as did the employment index to a slim 1.32 from its highest level since 2007. In the history of the NY employment index, there has been an 87% correlation between the employment index and the three-month growth in overall U.S. factory sector employment as reported by the Labor Department. The workweek index also fell m/m but remained significantly higher than the February low.

The prices paid index eased to its lowest level since July and remained down sharply from all of last year. Since inception in 2001, there has been a 77% correlation between the index of prices paid and the three-month change in the core intermediate materials PPI.

The Empire State index of expected business conditions in six months rose during November rose to its highest level since early-2004. The subseries for new orders, employment, prices and capital expenditures each rose. The inventory subseries rose sharply to it highest since early last year.

The Empire State Manufacturing Survey is a monthly survey of manufacturers in New York State. Participants from across the state in a variety of industries respond to a questionnaire and report the change in indicators from the previous month. Respondents also state the likely direction of these same indicators six months ahead. For more on the Empire State Manufacturing Survey, including methodologies and the latest report, click here. The Empire State data is available in Haver's SURVEYS database.

Today's speech by Fed Chairman Ben S. Bernanke On the Outlook for the Economy and Policy can be found here here.

The Japanese economy grew more than expected in the third quarter.  The annual rate of increase was 4.79% continuing the recovery that began in the second quarter with an annual rate of increase of 2.72%.  The annual rates of change in private consumption and fixed investment and the annual rate of difference in net exports are show in the first chart. Japan still has a long way to go to recoup the losses from the recent deep depression.  The annual rate of real GDP in the third quarter was 531.3 trillion yen, compared the 569.1 trillion yen reached in the first quarter of 2008.

Although both net exports and private consumption continued to increase in the third quarter, their annual rates of increase were lower than those in the second quarter.  Even with a lower rate decline in Gross Fixed Domestic Investment, from 10.5% in the second quarter to 1.3 % in the third quarter, the net effect of these factors does not appear to account for the sharp increase reported for total GDP in the third quarter.  It should be noted that the data are preliminary and some of the components, notably the change in inventories, is only updated during the 2nd preliminary release.  Given the volatility and the large positive and negative contributions of inventory changes to total growth, as shown in the second chart, it is highly likely that the missing element in Japan's third quarter growth was due to inventory accumulation.

Deflation continues to characterize the Japanese economy.  The third chart shows GDP in nominal and real terms since 2000 when real GDP began to exceed nominal, indicating a declining price level.