Low Inflation Paves Way for QE Continuation
The Consumer Price Index was up just .1% in May. This followed a .4% decline in April. What's weighing down the index? An overall decline in commodities prices, which is driving down the cost of just about everything: fuel oil (- 2.9%), medical care commodities (-.5%), grocery store food (-.3%), and used cars and trucks (-.1%).
The year-over-year comparison, which removes the effect of seasonal variations, rose just 1.4%. Although it seems like gas prices are still high, they're actually 4.1% lower than this time last year. This drag on inflation offset prices increases for every other category except used cars and trucks, which cost 1.6% less than in May 2012.
Auto Purchases Boost May Retail Sales
May retail sales rose .6% to $421.1 billion. This followed a .1% increase in April, and a .4% decline in March. The greatest contribution came from auto sales, which rose 1.9%. Other growth areas included building materials (up .9%), grocery stores (up .7%), and online retailers (also up .7%).
Strength in these areas offset mild losses in most other areas: furniture stores (-.8%), electronics/appliances (-.4%), restaurants (-.4%), clothing (-.2%), and department stores (-.2%). Gas station sales were down .2%, but that was mostly due to lower gas prices.
Consumers Shun Credit Cards in Favor of Loans
In April, consumers only added another $100 million in credit card debt. This sounds like a lot, until you realize it's just a 1% increase to the $849.1 billion they already owed. Even that's much, much less than the $1 trillion owed in 2008. Overall, it's a healthy sign for a country that tried to attain the American Dream on the back of plastic.
Instead, families are wisely taking advantage of low interest rates to take out auto and school loans. This "Non-revolving" debt rose 6.4% to a new record, $1.97 trillion. Of this, nearly a third ($567 billion) was held by the Federal government for education loans. All told, Americans now owe a record $2.82 trillion in total consumer debt. (Source: Federal Reserve, G.19 Release, June 7, 2013)
May Jobs Report Means Slow, Steady Growth
In May, 175,000 jobs were added, more than the 150,000 minimum required for healthy economic growth. The unemployment rate rose slightly to 7.6%, a sign that more people were encouraged enough to return to the labor force. The April report was revised down, from 165,000 to 149,000, but the March report was revised up from 138,000 to 142,000. Investors signaled their approval by adding 200 points to the Dow.
The Bureau of Labor Statistics reported that the Leisure and Hospitality sector (bars, restaurants and hotels) was the largest contributor, adding 43,000 jobs, while Retail Trade added 27,700 jobs. This means that consumer spending, the most important piston of the economic engine, is robust. Another big boost came from Temporary Services, which added 25,600 jobs. This is another good signs, because it means that employers who aren't confident enough to add permanent jobs are still getting enough demand to need temporary workers. Read More...
Is the Economy Really on the Mend?
A reader asks:
...I must take you up on a point where you are stressing that the US economy is on the mend with housing and Wall Street up. First, the housing market is up mainly due to the Chinese no longer investing in Gov Bonds and spending the dollars they have accumulated on US Real estate and other assets. It is said that 7 of every 10 homes in Los Angeles is being bought by Chinese. Second, the Reserve Bank's printing is another reason to scare the bond market. What US media is NOT putting out is what is to become of the US when the Petrodollar collapses. In reality, I foresee is that the Bond market is about to collapse and interest rates will rise dramatically when the printing stops. What do you think?
Gold, "The Ultimate Bubble," Has Burst
As the stock market hits record highs, gold prices continue to fall. A review of gold prices throughout history show that this trend will probably continue. Was commodities trader George Soros right when he said "Gold is the ultimate bubble"? Were high prices in 2011 just a sign of an asset bubble? If so, how far will prices fall? Read More...
First Quarter Economic Growth Revised Only Slightly
Fortunately, the Bureau of Economic Analysis barely revised its estimate of the GDP growth rate for Q1 2013. The economy grew 2.4%, instead of the Advance Estimate of 2.5%, from January through March this year. This is still an ideal growth rate, which is anywhere between two to three percent.
Many experts would like the economy to grow much faster than 3%, so that more jobs will be created and lower the 7.5% unemployment rate. However, faster growth runs the risk of generating inflation. Slower growth, of course, is even more dangerous at this phase in the business cycle. It could reduce confidence in future growth, and even send the nation back into recession. Read More...
Durable Goods Up 3.3% in April
Manufacturers' orders for durable goods rose in April to $222.6 billion, a healthy 3.3% increase. This was great news after the 5.9% drop in March. The boost in business orders for large, expensive and long-lasting equipment was across the board. Even when big orders for commercial aircraft was stripped out, orders for everything else still rose 1.3%. Likewise, when orders for defense equipment was excluded, orders for everything else was still up 2.1%.
Prices Dropped .4% in April
Across the board, U.S. prices fell .4% in April, as measured by the Consumer Price Index. An 8.1% drop in gas prices offset mild price increases in most other goods and services. Used cars and trucks were up .6%, while new vehicle prices rose .3% as did the cost of going out to eat. Grocery prices only rose .1%, as did medical supplies. Health care services actually dropped .1% last month.
Since gas prices usually drop this time each year, it's important to look at price changes year-over-year to remove the effect these seasonal variations. Here again, inflation was mild, with prices rising just 1.1%. That's because gas prices were 8.3% lower than this time last year. This offset a 2-3% increase in prices for just about every other category.
Shoppers Celebrate Spring, Boosting April Sales .1%
Retail sales rose .1% in April, to $419 billion, after a .4% decline in March. Increases in spring-inspired categories, such as clothing (up 1.2%), gardening (up 1.5%) and sporting goods (up .5%) offset a 4.7% decline in gas station sales (a result of a seasonal drop in gas prices).
Three other categories also received large boosts, a sign that the economy continues on its steady path of recovery. First, online retailers continued to take business away from brick-and-mortar stores, posting sales gains of 1.4%. Second, automobile sales were up a solid 1%. Third, big box retailers posted solid 1% gains. Even department stores saw a meager but welcome .3% rise, the first increase in months.