Written by Peter Boockvar, Chief Investment Officer, Bleakley Advisory Group

February core retail sales (ex autos, gasoline and building materials) rose just .1% m/o/m after no change in January and a decline of one-tenth in December. The estimate was for a gain of 4 tenths. Auto/parts sales fell for a 4^th straight month and are up only 2.1% y/o/y (vehicle sales got a respite after the hurricanes but seem to be back in the decline that they were in mid last year). Building materials sales rebounded by 1.9% after the likely weather induced 1.7% drop in January. Elsewhere of note, sales of electronics, furniture, department stores and food/beverages fell while they rose for clothing, sporting goods, restaurant/bars and online retailing. On the latter, it was up 1% m/o/m after dropping by a like amount in January. Versus last year, they are still up a solid 10.5% and of course are the main growth story in retail.

Bottom line, core retail sales have gone nowhere over the past 3 months. They totaled $268.8b in November and were $268.2b in February. Maybe consumers are waiting for their tax refund check? Maybe they are saving the tax cuts and paying down the large credit binge they went on over the past 6 months? Maybe after seeing their savings rate fall to a 10 yr low they are deciding to replenish bank accounts? What is up?

Core Retail Sales

Source: Bloomberg

The producer price index rose .2% vs the estimate of up .1%. The core rate was up by .2% as expected but taking out food, energy and trade saw a 4 tenths jump, double the estimate and after a similar gain in January. On the latter, the y/o/y gain is now 2.7%, the highest in at least 4 years when they started to calculate this figure. Headline PPI was up 2.8% and is up 2%+ for 12 in the last 13 months. Inflation is clearly rising with it more pronounced at the wholesale level. If yesterday’s NFIB report is any indication, companies seem ready to start passing that on.

We’ve heard many stories and read articles of the problems with rising transportation costs due to the dearth of trucking capacity. Transportation and warehouse prices jumped 9 tenths m/o/m (in particular “traveler accommodation services jumped 3.7%”) and this drove a 3 tenths m/o/m rise in service costs. Goods pricing fell, weighted down by food and energy but rose 2 tenths ex this led by a 7.2% spike in chemical prices.