Consumer Price Index News Release

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The latest Consumer Price Index news release (http://www.bls.gov/news.release/pdf/cpi.pdf) was issued today by the Bureau of Labor Statistics. Highlights are below.
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On a seasonally adjusted basis, the CPI-U increased 0.2 percent in May after rising 0.4 percent in April. The index for all items less food and energy rose 0.3 percent in May after increasing 0.2 percent in April.

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Consumer Price Index

Yesterday, we had a look at production cost inflation (through the PPI).  Today, it's time to consult the CPI-U and see what, if anything, has passed on to consumers.

 

Last month, April's CPI-U was a mixed bag of results.  It increased 0.4%, which was right in line with expectations, while core CPI-U increased 0.2% (missing expectations).  We also saw the energy index rise 2.2% and the food index rise 0.4%.  Finally, for the rolling year, CPI-U had increased 3.2%.

 

This month, the Econoday-surveyed analysts are suffering from a bout of rampant optimism.  They're calling for a flat 0.0% change in CPI-U, and a 0.2% increase in CPI-U.  Are they right?

 

The short answer:  no.

 

The long answer comes from the Bureau of Labor Statistics' Consumer Price Index Summary, which shows a 0.2% increase in CPI-U for the month of May[1], and a 0.3% increase in core CPI-U.  Much of the increase is attributed to increased costs for clothing, shelter, new vehicles and recreation, which offset declines in costs for airline fare, tobacco, and personal care.  The food index increased 0.4%, but the energy index decreased 1.0%(!).

 

All of this puts CPI-U up 3.6% for the rolling year, core CPI-U up 1.5% for the rolling year, food CPI up 3.5%, and energy CPI up 21.5%.

 

[1]  Not too bad, really.  Although, technically, this means that we missed expectations by (infinity - 1)%.  Feel free to ask, if you really want to see the math.  But that's an amusing technicality in any event, because we really only missed expectations by 20 basis points..

Retail Sales

Retail Sales!  This is the report in which the US Census Bureau tells us about the changes in total receipts at stores that sell durable and nondurable goods - that is, goods you can touch, pick up, smell, eat, and so forth.  As opposed to intangible goods, which are actually services.  The Street likes this report because they like sales.  They like corporate revenues, they like seeing the economy working, and they like profits.

 

April was slightly disappointing, though.  Overall retail sales increased 0.5% (missing expectations), but ex-auto retail sales were up 0.6% (meeting expectations).  Gas stations had the best month, with a 2.7% increase in sales (helped by rising gasoline costs, since this is total receipts we're looking at), while sporting goods, hobby, book & music store sales had the worst month (with sales falling 1.9%).

 

So that was past.  In the present, the Econoday-surveyed analysts are expecting a soul-crushingly bad month[1], looking for overall sales to fall 0.3%, but for ex-auto retail sales to climb 0.3%.  So, obviously, they're expecting car sales to outright tank.  But are they right?  Let's turn to the Census Bureau's Advance Monthly Sales For Retail and Food Services May 2011 report and find out.

 

Actually, they're wrong.  But in a good way.  May brings us a 0.2% decline in overall retail sales, and a 0.3% increase in ex-auto retail sales.  So we beat expectations on the one and met expectations on the other.  Miscellaneous store retailers[2] had the best of the month, with a 2.1% increase in sales, while motor vehicle and parts dealers had the worst of the month (with a 2.9% decline in sales).

 

[1]  A little hyperbole is good for the soul, don't you think?

[2]  They really don't define "miscellaneous store retailers".  I'm assuming this covers any type of store that either isn't covered in the existing categories, or one that straddles the boundaries so well that you can't really say it belongs to one over the other.  Like a three-star restaurant that is also a lumber yard.

Producer Price Index

The Producer Price Index - PPI to its friends - is a Bureau of Labor Statistics index that tracks the change in manufacturing costs in the United States.  If PPI goes up, that implies rising inflation (although it doesn't always prove it, since bad economic conditions can make it difficult to pass production costs on to consumers[1]).  Analysts like neutral numbers here;  mild increases are tolerable, as are mild decreases.  Large jumps are likely to send everyone into a panic about "skyrocketing inflation" or "deflationary death spirals".

 

For what it's worth, last month demonstrated that "deflationary death spirals" are not on the agenda right now.  PPI for finished goods rose 0.8% in April (missing expectations), while core PPI for finished goods rose 0.3% (also missing expectations).  Interestingly enough, PPI for finished foods (the foods you buy in the grocery store, whether fresh or canned) rose 0.3%,driven by a 56.7% increase in the cost of eggs.  PPI for intermediate goods rose 1.3%, and PPI for crude goods rose 4.0%.

 

The Econoday-surveyed analysts are fairly confident that May will have better results.  They're calling for a 0.1% increase in PPI for finished goods, with core PPI for finished goods rising 0.2%.  And the question now is, are they right?

 

And the answer is, according to the BLS Producer Price Indexes - May 2011 release, not really.  Although they came close.  PPI for finished goods rose 0.2% in May, with the core PPI for finished goods also rising 0.2%.  PPI for finished food fell 1.4% (driven by a 12.2% decline in prices for fresh and dry vegetables) while PPI for finished energy rose 1.5% (driven by a 2.7% increase in gasoline prices).  PPI for intermediate goods rose 0.9%,and PPI for crude goods fell 4.1% (driven by a 4.7% decrease in the cost of copper).

 

So, yes, expectations were missed.  But, particularly with that massive decline in crude goods costs getting ready to work its way through the production cycle, I doubt anyone will mind all that much.

 

[1]  Well, it makes it difficult if you intend to sell those more expensive products.  Particularly if you produce luxury goods that consumers can do without when push comes to shove.

Producer Price Index News Release

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The latest Producer Price Index news release (http://www.bls.gov/news.release/pdf/ppi.pdf) was issued today by the Bureau of Labor Statistics. Highlights are below.
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The Producer Price Index for finished goods rose 0.2 percent in May, seasonally adjusted. This advance followed increases of 0.8 percent in April and 0.7 percent in March. The index for finished goods less foods and energy moved up 0.2 percent.

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NFIB Small Business Optimism Index

The NFIB is the National Federation of Independent Business, an organization that describes itself as "the leading small business association representing small and independent businesses.  A nonprofit, nonpartisan organization founded in 1943, NFIB represents the consensus views of its members in Washington and all 50 state capitals."

 

One thing that the NFIB does is survey its members on a monthly basis, checking their feelings about current and future economic conditions.  Are small businesses optimistic about the future?  Are they planning on hiring?  Do they plan to expand?

 

Interestingly enough, this report gets pretty much no traction whatsoever from analysts[1].  So why am I giving the data on it?  Well, according to the US Small Business Administration, small businesses

• Represent 99.7% of all employer firms
• Employ just over half of all private sector employees
• Pay 44% of total US private payroll
• Have generated 64% of net new jobs over the past 15 years
• Create more than half of thee nonfarm private gross domestic product
• Hire 40% of high tech workers
• Made up 97.3% of all identified exporters and produced 30.2% of the known export value in FY 2007
• Produce 13 times more patents per employee than large patenting firms

So they've got some impact on and influence over the general health of the economy.

 

Now, with all that in mind, let's turn to the NFIB press release "Consumer Spending Remains Weak:  Small Business Optimism Dips a Little Lower".  May marks the third consecutive month of falling small business optimism, with the Small Business Optimism Index dropping 3 points to a level of 90.9.  Employment growth is virtually 0, with only 13% of the businesses surveyed planning to increase hiring in the next three months.  Overall sales have fallen 9% over the last three months.

 

Not a great economic picture, particularly in light of the impact small businesses have on the economy.

 

[1]  Which, in fairness, makes sense.  Small businesses are the least likely to be publically traded, and analysts look at publically traded companies.  But it still seems short-sighted, if you're interested in the health of the economy.

What's Happening This Week?

Just a quick look into the future, so you know what to expect in the way of market-moving economic measures.

 

Tuesday brings us the NIFIB Small Business Optimism Index (aka "what sort of mood are half the employers in the United States in"), the  Producer Price Index (aka "What does it cost to make things") and Retail Sales (a quick look at the change in total receipts in stores that sell durable and/or non-durable goods[1]).

 

Wednesday brings us the MBA's Purchase Applications index (a look at the weekly change in the number of new and refinance mortgage applications), the Consumer Price Index ("inflation! Inflation! INFLATION!") and Industrial Production ("now that we know how much more it costs to make stuff, how much stuff are we making?").  Maybe the Empire State Manufacturing Survey ("what do New York manufacturers think about the current economy") and the Housing Market Index ("what kind of demand is there for housing"), depending on how busy I get.

 

Thursday brings us Housing Starts ("how many new homes did we start building"), Jobless Claims ("Yip yip yip yip yip yip, sha na na na na, get a job!  Sha na na na na, sha na na nanana na!") and the Philadelphia Fed Survey ("We're kind of like the Empire State survey, except that people care").

 

And Friday?  Consumer Sentiment and Leading Indicators.

 

So, it's a bit of a busy week.

 

[1]  I used to joke that, if you're including durable and non-durable goods, there's nothing left.  But, it turns out that there are also intangible goods.  Intangible goods are services, things you can't touch/see/eat, like accounting or higher mathematics.  Stuff that's kind of essential to the economy, but isn't really considered to things that are produced.