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Weekly Economic Commentary


Soft Retail Sales Suggest Mild Gain in Q2 Consumer Spending

June 13, 2012

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Retail sales dropped 0.2% in May, matching the revised decline of April, previously reported as a 0.1 % gain. Lower prices of gasoline resulted in a 2.2% drop in gasoline sales in May. In addition, declines in general merchandise (-0.5%), eating and drinking (-0.2%), and personal health care (-0.1%) more than offset gains in purchases of clothing (+0.9%), electronics (+0.8%) and furniture (+0.4%).

Chart 1 - 06 13 2012

The April and May tally of retail sales translates into a soft trajectory of second quarter consumer spending, unless service outlays are strong enough to provide an offset. Purchases of services have been lackluster in the entire recovery (see Chart 2). In conclusion, consumer spending in the second quarter is likely to come in below the 2.7% gain seen in the first quarter.

Chart 2 - 06 13 2012

Table 1 - 06 13 2012

Lower Food and Energy Prices Bring Down Headline Wholesale Price Index

The Producer Price Index (PPI) of Finished Goods fell 1.0% in May after a 0.2% decline in the prior month. The May decline is attributed to the 4.3% drop of the energy price index and 0.6% reduction in the food price index. Roughly 80% of the decline in the energy price index is due to an 8.9% plunge in gasoline prices. Lower prices for meat account for a little over 60% of the drop in the food price index.

The core PPI, which excludes food and energy, rose 0.2% in May, matching the increase seen in April. Approximately 25% of the increase is from higher prices for pharmaceuticals. The headline PPI shows a significant decelerating trend (1.3% year-to-year increase in April-May vs. 3.4% year-to-year increase in the first quarter), while the core PPI readings from a year ago show a smaller pace of deceleration (2.7% year-to-year increase in April-May period vs. 3.00% increase in first quarter). These numbers suggest that wholesale prices do not present an inflationary threat.

Chart 3 - 06 13 2012

Table 2 - 06 13 2012












The opinions expressed herein are those of the author and do not necessarily represent the views of The Northern Trust Company. The Northern Trust Company does not warrant the accuracy or completeness of information contained herein, such information is subject to change and is not intended to influence your investment decisions.