Wednesday, March 14, 2007

More on Yesterday's Retail Sales

From the WSJ:

In an email to clients, Haseeb Ahmed, U.S. economist with J.P. Morgan Chase & Co., noted that core retail sales -- a measure that excludes cars, gasoline and building supplies -- were down 0.2% in February, the weakest showing since March 2005. Core retail sales for January and December were weaker than originally reported: January was revised to 0.3% growth from a previously reported 0.4% growth; December was revised to 0.9% growth from 1%.


The retail-sales report also showed that spending at electronics-and-appliance stores fell 0.3%, the second straight month of decline, while sporting-goods and hobby stores were down 0.8%. Restaurants and bars were down 1.2%. Some economists say such data show consumers are getting more cautious. "The housing market is clearly weighing on consumers. I think they're looking at debt burdens that are very high and saying we need to pull in the reins a little bit," says Richard Moody, chief economist at Mission Residential, a real-estate investment firm in Austin, Texas.

Separately, the Commerce Department reported that seasonally adjusted business inventories were up 0.2% in January, compared with being flat in December. The retail-sales report, combined with the news about business inventories, prompted some economists to downgrade their forecasts of first-quarter gross domestic product, the broadest measure of economic output. Credit Suisse Group lowered its first-quarter GDP estimate to 2.0% from an earlier estimate of 2.5%. Macroeconomic Advisers LLC reduced its first-quarter GDP forecast to 1.7% from 2.1%.

A few points.

1.) Retail sales were revised lower for the last few months. That means economists assumptions about consumer behavior are going to have to come down for their future projections, which will lower GDP growth estimates.

2.) Note that spending dropped across the board -- hobby stores, restaurants and sporting goods stores. Some of this may be a post-holiday slowdown. But with all of the bad housing news coming out, it's reasonable to assume consumers may be pulling in their spending habits.

3.) Personally, I've become less concerned about inventory numbers, largely because retailers (and anyone else who would traditionally keep inventory) have become incredibly adept at inventory management. The inventory to sales ratio at the national level has continued to drop while consumer spending has continued to rise. This tells me that inventory systems are pretty advanced.