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Posts Tagged ‘Retail Sales’

Building Material Sales Add Volatility to Retail Sales

June 11th, 2010 Michael McDonough Comments off

Unusual volatility in the sale of building materials has exaggerated retail sales over the past three months.  While this doesn’t change the prevailing trend, sales in both April and March would have appeared far less optimistic than reported.   Building material sales climbed 8.0% in both March and April-a pace not seen since March 2004-plummting -9.3% in May.  In April the surge in building material sales, despite broad-based weakness in most other retail components permitted retail sales index excluding automobiles andgasoline to rise 0.6%. However, as you can see from the attached chart, if you excluded building materials from the index retail sales ex-autos and gas in Aprilwould have fell -0.2%, compared to the reported 0.6% rise.  Using the same parameterssales in May, sales would have risen an anemic 0.1% (still better than the -0.5% decline reported in today’s release).   Reducing the recent volatility caused by building material sales, the trend still points toward a lackluster summer selling season without significant, albeit unlikely, improvements to household balance sheets.

Source: Bloomberg

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Retail Sales Just Ain’t What They Used To Be:

May 14th, 2010 Michael McDonough Comments off
On the surface the investors should be celebrating April’s higher than estimated retail sales growth, but a look behind the curtain reveals a slightly different picture.  The retail sales control group, which the government uses to calculate GDP, actually fell -0.2% during the month, its first decline since July 2009 (see chart).  The control group factors out sales for autos, gas, and building materials. 

Source: Bloomberg

Additionally, overall gains were not nearly as broad-based as many had hoped.  Building materials (+6.9% m/m), was the only component to show significant growth, followed by health and personal care sales that rose by a meager +0.9%.  Sales of furniture, electronics, clothing, and general merchandise all fell during the month.  Some good news did come from upward revisions to the first quarter sales data that will provide some tailwinds for the second estimate of first quarter GDP growth originally estimated at 3.2%.  Nevertheless, the weakness behind this report will likely do little to help significantly bolster business confidence; keeping companies hesitant about hiring additional full-time employees.

Source: Bloomberg
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Preparing for Retail

May 14th, 2010 Michael McDonough Comments off

On the surface, a recovery in retail sales is not only a harbinger for stronger economic growth, but could prove to be the missing link for job creation (see chart).  Climbing out of the deepest recession since the Great Depression, consumption growth has been surprisingly tepid, at least partially due to companies’ lack of confidence in the current recovery.  This is best demonstrated by surging temporary employment—first in first out employees—while overall hiring is lagging.  While forecasted gains in April’s retail sales, released 8:30 a.m., (+0.2% m/m, +0.4% ex-autos) could help bolster confidence, concerns linger that these improvements may be artificial, fueled by temporary government stimulus, and not be broad based enough to support a genuine recovery.  Both sides of this argument likely have some merit, but I anticipate marginal gains in consumption will continue over the months ahead as consumer confidence strengthens, and as consumer credit levels revert back to their historical norms, after significant deleveraging.

Source: Bloomberg

Thinking quantitatively about this my mind displays Excel’s infamous ‘circular reference’ warning.  People need jobs to consume, and companies need sales to hire.  If companies don’t hire, then people have no income to consume.  While you may be familiar with the adverse feedback loops that helped bring down the market, this is an advantageous feedback loop, where higher sales or faster hiring will support the other factor.  The bottom line is, it will be important to watch whether or not April’s gains are limited to a small subset of sectors, or are more broad-based.  Strong broad based growth will have a much stronger impact on business sentiment, consumption growth’s sustainability, and the likelihood of job creation.

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US Economics Week Ahead: Retail Sales & The Start of Earnings

January 8th, 2010 Michael McDonough Comments off

With employment out of the way—for now—onto earnings; Alcoa is scheduled to kick of the 4Q09 earnings season with its report on Monday.  Earnings might be stealing most of the show this week, but don’t count out economic data with the release of a critically important retail sales release on Thursday and a torrent of Fed speak prior to the blackout period for the Jan 26-27 FOMC meeting.  Speaking of the Fed the market will gain access to the Beige Book on Wednesday, which should continue to indicate marginal upticks in economic activity throughout the fed’s districts.  Other important releases include; Thursday’s jobless claims and business inventories; and Friday’s CPI, Empire State Manufacturing Survey, industrial production, and consumer sentiment releases.

Don’t ignore the fed speak.  It is my belief that as we move closer to a new fed tightening cycle the first indications of a shift in the Fed’s bias will come through subtle or maybe even not so subtle clues in fed officials numerous public speeches.  The next indicator will come in the form of the FOMC minutes, but that is another story for another day.  Given the weakness in last week’s employment report I still think we are a ways off from a new tightening cycle—November 2010—, but I am not the one making the decisions, so I recommend listening to Fed officials closely as we move closer to an inevitable move.

Other notable companies reporting earnings next week include Intel (INTC) and JP Morgan (JPM).  Next week will also see the opening of the Detroit Auto Show on Monday, where heavy focus is likely to be placed on small and hybrid vehicles.  Finally, I wanted to thank everyone who has recently emailed me regarding the usefulness of this piece.  Additionally, I invite anyone with any comments or recommendations on how to make the Economic First Look even more useful to please shoot me an email.

Here is the rest of this week’s US calendar:

Monday, Jan. 11

12:40 p.m. EST: Dennis Lockhart, the Atlanta Federal Reserve Bank President, will give a speech on the economy at the Rotary Club of Atlanta.

9:10 p.m. EST: James Bullard, the St Louis Federal Reserve Bank President, will speak in Shanghai.

Tuesday, Jan. 12

7:45 a.m. EST: ICSC-Goldman Store Sales (Risk: Neutral, Market Reaction: Marginal): This weekly index tracks aggregate store sales across major US retailers, accounting for roughly 10% of total retail sales.  Last week’s number rose +1.5% compared to an increment of +0.4% a week prior.  This week’s release will cover the first full in January.

8:30 a.m. EST: November’s International Trade (Risk: Neutral, Market Reaction: Moderate): I anticipate that November’s trade balance will widen slightly as likely imports rose at a faster pace than exports, due to higher energy import costs.  In October, export growth surprised to the upside leading to a marginal contraction in the trade balance. It is usually expected that both exports and imports rise during the start of an economic recovery, while the trade balance widens.  The current Bloomberg consensus forecast is for the trade balance to widen to -$35.0bn in November from -$32.9bn in October.

8:55 a.m. EST: Redbook (Risk: Neutral, Market Reaction: Marginal): The Redbook is a weekly measurement of chain stores, discounters, and department store sales.  This indicator tends to be less significant than the ICSC-Goldman Store Sales in forecasting retail sales.  According to the Redbook store sales rose 1.6% last week on a yearly basis.

7:00 p.m. EST: Charles Plosser, the Philadelphia Federal Reserve Bank President, will give a speech on the economic outlook at the Entrepreneurs Forum of Greater Philadelphia.

Wednesday, Jan. 13

7:00 a.m. EST: MBA Mortgage Applications (Risk: Neutral, Market Reaction: Marginal): This index, which tracks new mortgage applications tend to be a reasonable forward looking indicator for home sales, but issues including customers filling out numerous applications could skew the index.  Applications rose 0.5% last week after plummeting -22.8% a week prior.  Refinance applications fell -1.6%, while purchase applications rose 3.6%.  A wave of buyers, filling out multiple mortgage applications, that were looking to take advantage of the first time home buyer tax credit–originally set to expire on Nov. 30th–have already completed their transactions, and have recently reduced the demand for mortgages.    However, the recent extension of the first time home buyer tax credit should eventually bring a new set of buyers into the market, which could help support the purchase index over the coming months.

10:30 a.m. EST: EIA Petroleum Status Report (Risk: Neutral, Market Reaction: Moderate): This report measures US domestic petroleum inventories.  Large unanticipated swings in this index could have a significant impact on energy prices.  Last week this report showed an increase of 1.3 million barrels versus a drop of -1.5 million barrels a week prior.

12:30 p.m. EST: Charles Evans, the Chicago Federal Reserve Bank President, will speak at the Corridor Economic Forecast Luncheon.

2:00 p.m. EST: Beige Book (Risk: Neutral, Market Reaction: Significant): In the Fed’s previous Beige Book all of its districts reported at least modest upticks in growth, and I anticipate this trend will continue in the current release.  The report covers the last week in November though the first week of January.  The Beige Book is used as an input at the FOMC’s monetary policy meetings, meaning it shouldn’t be ignored by investors.

2:00 p.m. EST: December’s Treasury Budget (Risk: Neutral, Market Reaction: Moderate): December’s treasury budget will almost certainly show a record 15th consecutive month of deficits.  In November the monthly deficit totaled -$120.3 billion, bringing the government’s fiscal year to date total deficit up to -$296.7 billion.  December’s deficit may get some relief through TARP paybacks, but remain negative.  The current Bloomberg consensus forecast is for a deficit in December of -$92.0 billion.

Thursday, Jan. 14

8:30 a.m. EST: December’s Retail Sales (Risk: Neutral, Market Reaction: Significant): After rising 1.3% in November, retails sales should experience its third consecutive month of growth in December.  This growth will likely be led by strong vehicle sales during the month, which rose to a pace of 11.2mn vehicles during the month from a pace of 10.9mn units in November.  Excluding the auto component, retail sales should show some growth, but at a more moderate rate.  Of course any surprise to the upside in this data would be welcomed by the market.  The current Bloomberg consensus forecast is for retail sales to rise 0.4% in December, with retail sales ex-auto rising a more moderate 0.2%.

8:30 a.m. EST: Jobless Claims (Risk: Neutral, Market Reaction: Significant): Initial claims rose 1K last week to 434K, after falling 22K a week prior.  The four week moving average improved to 450,250 from 460,250.  This week’s strong seasonal adjustment factor—the strongest of the year in fact—could have some sway over the weekly report.  Improving initial jobless claims are indicative of fewer job losses in the BLS’s monthly employment report; however, the job situation will still get worse before it gets better.  The current Bloomberg consensus is for an initial jobless claims reading of 437K on Thursday.

8:30 a.m. EST: Import and Exports Prices (Risk: Neutral, Market Reaction: Marginal): A decline in energy prices during the month and a modest appreciation in the US dollar will likely helped to bring down import prices in December.

9:00 a.m. EST: RBC CASH Index (Risk: Neutral, Market Reaction: Marginal): The Royal Bank of Canada’s Consumer Attitudes and Spending by Household (CASH) Index is a monthly measure of consumer attitudes toward investing, the economic outlook, and personal finances.  This index does hold some importance in so much that it tends to demonstrate a pretty significant correlation with the consumer sentiment index being released on Friday.

10:00 a.m. EST: November’s Business Inventories (Risk: Positive, Market Reaction: Moderate): Marginal attention is typically placed on this release, but this month the business inventories report takes on added significance. Economists use this release to help gauge the impact of the inventory cycle on fourth quarter GDP growth.  What this means is economists will be using this data to confirm or alter their fourth quarter 2009 inventory projections, which could sway fourth quarter GDP projections.  Many economists—including myself—expect the inventory cycle will play a lead role in the current recovery.  It is important to note that the manufacturing and wholesale inventory components of the report have previously been released and rose +0.2% and +1.5%, respectively.  Therefore, the report’s retail inventory component—the only unknown figure— is the most important for investors to watch.  The current Bloomberg consensus forecast is for a rise in business inventories of 0.2%.

10:30 a.m. EST: EIA Natural Gas Report (Risk: Neutral, Market Reaction: Moderate): This report highlights domestic natural gas inventories, which could have a significant impact on the energy sector.

4:30 p.m. EST: Fed Balance Sheet & Money Supply—Current Week’s Release (Risk: Neutral, Market Reaction: Marginal): Since the Fed’s shift to quantitative easing, the balance sheet has become one method to measure to the Fed’s effectiveness.  The market will pay close attention to the reserve bank credit component, which measures factors supplying   providing reserves into the banking system.  The Fed’s balance sheet shrank marginally last week to US$2.216trn from US$2.219trn.  The fed’s balance sheet has slowly been shifting away from emergency lending facilities to Treasuries, agency debt, and mortgage-backed securities to help moderate long-term interest rates.

Friday, Jan. 15

8:30 a.m. EST: December’s Consumer Price Index (Risk: Neutral, Market Reaction: Significant): Headline consumer prices likely rose in December, albeit at a slightly more moderate pace than the 0.4% rise in November.  A bit of warning, on a year over year basis headline CPI will likely rise at the fastest pace in over a year due to extraordinarily low energy prices realized in the fourth quarter of 2008, this pattern will likely continue over the next few months and then normalize as past energy prices play catch-up.  Core CPI should remain relatively subdued during the month.  The current Bloomberg consensus forecast is for a monthly rise in headline CPI of 0.1%, with Core CPI anticipated to rise at the same pace.

8:30 a.m. EST: January’s Empire State Manufacturing Survey (Risk: Negative, Market Reaction: Significant): This release will be investors first window into the fed’s regional factory sector reports for 2010.  Over the prior two months this survey has lost significant ground falling to 2.6 in December from 34.6 in October—a reading over 0 signifies expansion.  In December the Richmond fed’s release fell below 0 for the first time in 7 months; ironically, Richmond was the first of the fed’s districts to indicate a marginal recovery.  Nevertheless, I do not anticipate the NY fed’s survey will follow suit.  The current Bloomberg consensus forecast is for a survey result of 13.0, compared to 2.6 in December.  The new orders component remained positive in December, but barely, so I recommend keeping a close eye on December’s number.  Additionally, don’t forget to watch the prices paid and employment components of the release.

8:30 a.m. EST: December’s Industrial Production (Risk: Neutral, Market Reaction: Significant): Extremely cold weather across the country should help boost utility output during the month, which should help bolster December’s industrial output.  Growth in the manufacturing component should be relatively restrained during the month as aggregate hours worked in manufacturing fell -0.4% during December.  The current Bloomberg consensus forecast is for an increment in industrial production of 0.6%, compared to 0.8% a month prior.  The same forecast anticipates capacity utilization to rise to 71.9% from 71.3% in November.

9:55 a.m. EST: Preliminary January Consumer Sentiment (Risk: Neutral, Market Reaction: Significant): I expect this index will be up marginally from its final reading of 72.5, on the back of early indications of improvements in the labor market, and incentives around the holiday season.  But, these positive factors will be playing a tug-of-war against negative factors including energy prices and what, despite improvements, is a weak labor market.  The current Bloomberg consensus forecast is for a reading of 74.0.

12:30 p.m. EST: Jeffrey Lacker, the Richmond Federal Reserve Bank President, will speak about the economic outlook to the Richmond Risk Management Association.

2:30 p.m. EST: Janet Yellen, the San Francisco Federal Reserve Bank President, will give a speech on “Economic Environment for Innovation” at the Innovation and Equity Conference in San Francisco, CA

Enjoy the weekend!

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US Economics Week Ahead: Black or Red Friday?

December 5th, 2009 Michael McDonough Comments off

This week is relatively quiet on the economic front, following last week’s tsunami of data culminating in a much better than anticipated employment release.  This week’s theme is the consumers, who have the potential to stymie last week’s positive sentiment depending on sales strength during the Black Friday shopping weekend.  The week’s primary release will be retail sales on Friday; however, the Tuesday’s typically overlooked Redbook and ICSC-Goldman Store Sales releases could provide some important clues toward Friday’s critical sales report.  Early indications have been mixed, with discount stores seeming to be more robust relative to their department and specialty store counterparts—another indication of a more value oriented consumer.

After Friday’s employment report investors will be paying close attention to Thursday’s jobless claims data hoping for additional evidence that Friday’s much better than anticipated employment report was not a one-off event.  Personally, I still believe the employment situation will get worse before it gets better, but is unquestionably heading in the right direction.  Other important indicators this week include Thursday’s international trade data and Treasury budget; and Friday’s preliminary consumer sentiment index and business inventories report.

We should also hear earnings this week from Costco Wholesale Corp., H&R Block Inc., Kroger, and Smithfield Foods.  Additionally, during a speech on the economy on Tuesday President Obama could discuss new proposals for job creation derived from his recent jobs summit.

Here is the rest of this week’s US calendar:

Monday, Dec. 7

12:00 p.m. EST: Ben Bernanke, the Federal Reserve Chairman, speaks to the Economics Club of Washington D.C.

3:00 p.m. EST: October’s Consumer Credit (Risk: Neutral, Market Reaction: Moderate): Total outstanding consumer credit will likely decline for the 8th consecutive month—a series record—after declining by -$14.8 billion in September.  The decline should come entirely from a decline in revolving credit—credit cards—while non-revolving credit should show a modest increment due to auto sales.  The current Bloomberg consensus forecast is for a total decline in credit of -$9.3 billion for October.  This data would be more significant if retail sales and personal sales data were not already known for the month.

5:45 p.m. EST: William Dudley, the NY Fed President, is attending Columbia University’s World Leaders Forum

Tuesday, Dec. 8

7:45 a.m. EST: ICSC-Goldman Store Sales (Risk: Neutral, Market Reaction: Marginal): This weekly index tracks aggregate store sales across major US retailers, accounting for roughly 10% of total retail sales.  Given recent data supporting an increasing US saving rates and a worsening employment situation, this index could face some downward pressure.  Last week’s number declined -0.1% compared to no change a week prior.

8:55 a.m. EST: Redbook (Risk: Neutral, Market Reaction: Marginal): The Redbook is a weekly measurement of chain stores, discounters, and department store sales.  This indicator tends to be less significant than the ICSC-Goldman Store Sales in forecasting retail sales.  According to the Redbook store sales rose 3.8% last week on a year over year basis.

10:00 a.m. EST: IBD/TIPP Economic Optimism Index (Risk: Neutral, Market Reaction: Marginal): IBD’s economic optimism index is not closely watched by markets, but it could provide us with some direction for Friday’s preliminary consumer sentiment index.

Wednesday, Dec. 9

7:00 a.m. EST: MBA Mortgage Applications (Risk: Neutral, Market Reaction: Marginal): This index, which tracks new mortgage applications tends to be a reasonable forward looking indicator for home sales, but issues including customers filling out numerous applications could skew the index.  Applications rose 2.1% last week after dropping 5.5% a week prior.  Refinance applications climbed 1.7%, while purchase applications rose 4.1% on the back of attractive interest rates.  A wave of buyers, filling out multiple mortgage applications, that were looking to take advantage of the first time home buyer tax credit–originally set to expire on Nov. 30th–have already completed their transactions, and have recently reduced the demand for mortgages.    However, the recent extension of the first time home buyer tax credit should eventually bring a new set of buyers into the market, which could help support the purchase index over the coming months.

10:00 a.m. EST: Wholesale Trade (Risk: Neutral, Market Reaction: Marginal): This indicator measure the level of inventories and sales by US wholesalers.  It is generally considered a good forward looking indicator toward trends in consumer behavior as stores typically ramp up inventories prior to any anticipated increment in sales.  It is important to note that this data is on a two month lag.

10:30 a.m. EST: EIA Petroleum Status Report (Risk: Neutral, Market Reaction: Moderate): This report measures US domestic petroleum inventories.  Large unanticipated swings in this index could have a significant impact on energy prices.  Last week this report showed an increment of 2.1 million barrels versus a jump of 1.0 million barrels a week prior.

Thursday, Dec. 10

8:30 a.m. EST: October’s International Trade Data (Risk: Neutral, Market Reaction: Moderate): The US trade deficit likely grew further in October on the back of an increment in imports, offset by a smaller increment in exports.  It is not unusual for the trade gap to widen during a recovery period.  However, the current Bloomberg consensus forecast is for a little changed trade deficit in October of $36.4 billion, compared to $36.5 billion in September.

8:30 a.m. EST: Jobless Claims (Risk: Neutral, Market Reaction: Significant): Initial claims fell 5K last week to 457K, after falling 35K a week prior. This is the lowest level reading since September 2008. But, a portion of this improvement could be attributable to strong seasonal adjustment factors due to annual deviations in the date of the Thanksgiving holiday, but there is no doubt the news is getting better.  Improving initial claims are indicative of fewer job losses in the monthly employment report; however, the job situation will get worse before it gets better.  The current Bloomberg consensus forecast is expecting claims to come in at 460K, an increase of 3K from last week.

9:00 a.m. EST: RBC Cash Index (Risk: Neutral, Market Reaction: Moderate): The Royal Bank of Canada’s Consumer Attitudes and Spending by Household (CASH) Index is a monthly measure of consumer attitudes toward investing, the economic outlook, and personal finances.  This index does hold some importance in so much that it tends to demonstrate a pretty significant correlation with the consumer sentiment index being released next week.

10:00 a.m. EST: Third Quarter Quarterly Services Survey (Risk: Neutral, Market Reaction: Marginal): The U.S. Consensus Bureau’s Quarterly Services Survey estimates total operating revenue with a breakdown in revenue by client type (i.e. government, business, consumers, and individuals).  The survey is specific to the following baskets of sectors: 1) Information, 2) Professional, Scientific, and Technical Services, 3) Administrative and Support and Waste Management and Remediation Services, 4) Hospitals and Nursing and Residential Care Facilities.  The 2Q09 survey showed revenues decreased for all sectors excluding hospital and nursing and residential care facilities.

10:30 a.m. EST: EIA Natural Gas Report (Risk: Neutral, Market Reaction: Moderate): This report highlights domestic natural gas inventories, which could have a significant impact on the energy sector.

12:45 p.m. EST: Elizabeth Duke, a Federal Reserve Board Governor, will speak at the Chicago Fed’s mortgage foreclosure policy conference in Chicago.

2:00 p.m. EST: November’s Treasury Budget (Risk: Neutral, Market Reaction: Moderate): The Treasury Budget in November will likely show another record deficit.  In October—the first month of the government’s fiscal year—the deficit reached -$176.4 billion compared to -$155.5 billion a year prior.  The current Bloomberg consensus forecast for November is a deficit of -$135.0 billion, to help put this into perspective the average deficit over the past 10 years in November is -$68.4 billion.

4:30 p.m. EST: Fed Balance Sheet & Money Supply (Risk: Neutral, Market Reaction: Marginal): Since the Fed’s shift to quantitative easing, the balance sheet has become one method to measure to the Fed’s effectiveness.  The market will pay close attention to the reserve bank credit component, which measures factors supplying   providing reserves into the banking system.  The Fed’s balance sheet shrank last week to US$2.183trn from US$2.189trn.    The fed’s balance sheet has slowly been shifting away from emergency lending facilities to Treasuries, agency debt, and mortgage-backed securities to help moderate long-term interest rates.

Friday, Dec. 11

8:30 a.m. EST: November’s Retail Sales (Risk: Neutral, Market Reaction: Significant): Several factors should help bolster retail sales in November including higher auto sales, new video game releases—Modern Warfare 2—, and higher gasoline prices.  However, early indicators toward consumer sales during the popular Black Friday weekend have been mixed.  It would appear discount stores sales continue to outperform their department and specialty store counterparts.  Look toward Tuesday’s Redbook and ICSC-Goldman Store Sales for additional clues toward this release.  The current Bloomberg consensus forecast is for an increase in headline retail sales of 0.9% versus 1.4% a month prior, while retail sales ex-autos is expected to rise 0.5%, compared to 0.2% in October.  This would be te fourth consecutive month of growth for retail sales ex-autos.

8:30 a.m. EST: November’s Import and Export Prices (Risk: Neutral, Market Reaction: Marginal): The rising cost of oil in November will undoubtedly place upward pressure on the import price index.  Lower natural gas prices during the month will help to offset some increments in other imported commodities including gold and copper, but the ex-petroleum price index should still remain positive. 

9:55 a.m. EST: Preliminary December Consumer Sentiment (Risk: Positive, Market Reaction: Moderate): December’s preliminary consumer sentiment should show at least a modest gain from November’s final reading of 67.4.  For hints toward the direction of this indicator look at Tuesday’s IBD/TIPP Economic Optimism Index and ABC News consumer comfort index released Tuesday evening.  The current Bloomberg consensus is for a reading of 68.2 compared to 67.4 in November.

10:00 a.m. EST: October’s Business Inventories (Risk: Positive, Market Reaction: Moderate): The current Bloomberg consensus forecast is for a decline in inventories of -0.2% compared to a drop of -0.4% a month prior.  Despite the consensus forecast, factory inventories, which rose +0.4% in October, realizing its first gain in 14 months, providing some upward momentum for the release.  Concurrently wholesale inventories are anticipated to fall -0.4%—released on Wednesday—, while retail trade is expected to decline by -0.1%

Enjoy the weekend!

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October’s Retail Sales: The Devil’s in the Details

November 16th, 2009 Michael McDonough Comments off

As I mentioned in my week ahead, retail sales would likely set the pace for the week, and we received the data this morning. Retail sales rose +1.4% in October, compared to a revised -2.3% change in September (originally -1.5%). This was well above the latest Bloomberg consensus forecast of +0.9%,however, this good news was at least partially offset by the prior month’s revisions.

Retail sales x-autos climbed only +0.2% during the month, after rising a revised +0.4% in September (previously reported +0.5%). This was below the Bloomberg consensus forecast of +0.4%.

The good news is that the ex-auto’s index has gradually continued to trend higher since its collapse the end of last year.  The not so good news is that most all of October’s gains came from auto sales, which were recovering from a sharp drop in September caused by the expiration of the US government’s ‘Cash for Clunkers’ program-it is very unlikely these type of increments will be sustained.  Additionally, downward revision to past sales data will likely cause 3Q09 GDP to be revised down 0.1%, which combined with last week’s wider than anticipated trade deficit should lower 3Q09 GDP to 3.0% from 3.5% indicated by the advanced estimate.

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US Economics Week Ahead: Retail Sales will set the Pace

November 13th, 2009 Michael McDonough Comments off

The last full week in November brings with it its fair share of economic data, Fed talk, and a few important earnings stragglers.  The general themes of the week will be housing, manufacturing, inflation, and the consumer.  On the economic front, October’s retail sales—released on Monday—should steal the show, followed up by October’s industrial production data on Wednesday.  Other important indicators include Monday’s empire state manufacturing survey and business inventories, Tuesday’s PPI and TIC data, Wednesday’s CPI and housing starts report, and finally Thursday’s jobless claims and leading economic indicators release.  On the earnings front we can expect to hear from Home Depot, Lowes, Dell, GM, Gap, and Target.  Bernanke will be providing the week’s most critical ‘Fed chatter’, with his speech to the Economic Club of New York on Monday, which some believe could have implications for the dollar.

Here is the rest of this week’s US calendar:

Monday, Nov. 16

8:30 a.m. EST: October’s Retail Sales (Risk: Neutral, Market Reaction: Significant): After dropping 1.5% in September, primarily due to the expiration of the ‘Cash for Clunkers’ program, retail sales should have experienced a modest jump in October, partially on the back of higher auto sales.  Vehicle sales likely picked up during the month after falling 10.4% in September. The current Bloomberg consensus forecast for retail sales is an increment of 0.9%, while retail sales ex-autos is expected to rise 0.4%, after rising 0.5% in September.

8:30 a.m. EST: November’s Empire State Manufacturing Survey (Risk: Neutral, Market Reaction: Moderate): The New York Fed manufacturing index will likely experience a modest pullback after reaching a five year high in October.  Nevertheless, the index should remain well above its breakeven point of 0.  The current Bloomberg consensus forecast is for a reading of 29.0, versus 34.6 in October.  As always I recommend paying close attention to the forward looking new orders index, along with the employment and prices paid index for hints toward the labor market and inflation story.

10:00 a.m. EST: September’s Business Inventories (Risk: Neutral, Market Reaction: Marginal): The rate at which businesses are reducing inventories is anticipated to decline in September, albeit remain negative.  September will be the 14th consecutive month business inventories have decline.  Inventories declined -1.5% in August, but should be down a more modest 0.8% in September.  Auto inventories could be up slightly for the month as car dealers complete a limited restocking due to a jump in sales from the ‘Cash for Clunkers’ program

12:00 p.m. EST: Ben Bernanke, Fed Chairman, speaks to the Economic Club of New York

1:15 p.m. EST: Richard Fisher, Dallas Fed President, will discuss US economy and central bank at a community forum hosted by the District Bank in Dallas, TX

6:15 p.m. EST: Donald Kohn, Fed Vice-Chairman, will be participating in Northwestern University’s Kellogg Distinguished Lecture Series discussing “Federal Reserve Policy Challenges.”

Tuesday, Nov. 17

7:45 a.m. EST: ICSC-Goldman Store Sales (Risk: Neutral, Market Reaction: Marginal): This weekly index tracks aggregate store sales across major US retailers, accounting for roughly 10% of total retail sales.  Given recent data supporting an increasing US saving rates and a worsening employment situation, this index could face some downward pressure.  Last week’s number indicated a weekly decline of -0.1% in store sales compared to a gain of 0.1% a week prior—this was the first decline in six weeks.

8:30 a.m. EST: October’s Producer Price Index (Risk: Neutral, Market Reaction: Moderate): Rising food and energy prices during the month will likely lead to a significant increment in headline PPI.  Factoring out these volatile components the core-PPI should experience a more modest gain of around +0.1%.  The current Bloomberg consensus forecast for headline PPI is an increment of +0.5%, versus a decline of -0.6% a month prior.

8:55 a.m. EST: Redbook (Risk: Negative, Market Reaction: Marginal): The Redbook is a weekly measurement of chain stores, discounters, and department store sales.  This indicator tends to be less significant than the ICSC-Goldman Store Sales in forecasting retail sales.  According to the Redbook store sales were rose 1.7% last week on a year over year basis.

9:00 a.m. EST: September’s Treasury International Capital (TIC) Data (Risk: Neutral, Market Reaction: Moderate): This report highlights the flow of financial instruments to and from the U.S. It indicates foreign demand for U.S. financial instruments and thus tends to have a stronger impact on the dollar and the bond markets than it does on equities.  But, given the recent record levels for treasury auctions, it will be interesting to monitor foreign demand for US debt.

9:15 a.m. EST: October’s Industrial Production (Risk: Neutral, Market Reaction: Significant): After rising 0.7% in September, industrial production could face some pressure in October due to weakness in manufacturing, however, this weakness could be at least partially offset by utility output during the month.  On the manufacturing side, the expiration of the ‘Cash for Clunkers’ program should continue to adversely impact auto manufacturing, while manufacturing hours worked during the month also fell.  The current Bloomberg consensus is for an increment of +0.4%, compared to September’s growth of 0.7%.

10:00 a.m. EST: Jeffrey Lacker, Richmond Federal Reserve Bank President, is giving a speech on the economic outlook in Richmond.

1:00 p.m. EST: November’s Housing Market Index (Risk: Neutral, Market Reaction: Marginal): The extension of the first time home buyer tax credit should help bolster the NAHB/Wells Fargo housing market index, which fell to 18 in October.  This release could also provide a good lead in for the housing starts and permit data being released a day after.

12:30 p.m. EST: Sandra Pianalto, Cleveland Fed President, will give a speech at the 11th Annual Ohio Housing Conference

Wednesday, Nov. 18

7:00 a.m. EST: MBA Mortgage Applications (Risk: Neutral, Market Reaction: Marginal): This index, which tracks new mortgage applications tends to be a reasonable forward looking indicator for home sales, but issues including customers filling out numerous applications could skew the index.  Applications rose last week 3.2% after gaining 8.2% a week prior.  Last week’s overall increment was due entirely to a jump in refinance applications, which rose 11.3%, while the purchase index fell 11.7%.  A wave of buyers, filling out multiple mortgage applications, that were looking to take advantage of the first time home buyer tax credit–originally set to expire on Nov. 30th–have already completed their transactions, thereby reducing the current demand for mortgages.    However, the recent extension of the first time home buyer tax credit should eventually bring a new set of buyers into the market, which could help support the purchase index over the coming months–don’t forget buying a house can be a long drawn out process.   Nevertheless, increased lending standards for FHA loans, due to the organizations worsening finances, could place some headwinds on the purchase index’s recovery.

8:30 a.m. EST: October’s Consumer Price Index (Risk: Neutral, Market Reaction: Significant): Consumer prices in October likely experienced a modest rise on the back of higher food and energy prices, after rising 0.2% in September.  Core-CPI should remain relatively tame, with increasing auto prices potentially placing some upward pressure on the index.  Interestingly, residential rent and owners’ equivalent rent both declined by -0.1% in September—according to the BLS this is only the second time a decline of this magnitude has occurred.   The current Bloomberg consensus forecast is for an increase of 0.2% in the headline number and 0.1% for the core.

8:30 a.m. EST: October’s Housing Starts (Risk: Neutral, Market Reaction: Moderate): Housing starts and permits should continue to gain some momentum as the inventory of homes for sales continues to moderate.  It will be important to monitor multi-family housing starts, which has been a volatile component compared to single family starts—single family starts have been positive for every month since March, excluding August. The current Bloomberg consensus forecast is for an increase in starts to 600K from 590K a month prior.

9:15 a.m. EST: James Bullard, St. Louis Federal Reserve Bank President, will discuss the US economic outlook at the Commerce Bank Economic Breakfast in Clayton, MO.

10:30 a.m. EST: EIA Petroleum Status Report (Risk: Neutral, Market Reaction: Moderate): This report measures US domestic petroleum inventories.  Large unanticipated swings in this index could have a significant impact on energy prices.  Last week this report showed a gain of -1.8 million barrels versus a decline of -4.0 million barrels a week prior.

Thursday, Nov. 19

Charles Plosser, Philadelphia Federal Reserve Bank President, will be speaking at the Global Interdependence Center conference on food and water in Singapore.

8:30 a.m. EST: Jobless Claims (Risk: Neutral, Market Reaction: Significant): Initial claims fell last week by 12K to 502K, after falling 20K a week prior. I should note there is a potential for initial jobless claims slip below 500K this week, which would assuredly invoke numerous headlines.  Nevertheless, despite second derivative improvements these levels still indicate continued losses for monthly payrolls—albeit at a slower pace—coupled further deterioration to the unemployment rate, which has already exceeded 10%. The current Bloomberg consensus forecast is expecting claims to come in at 505K, essentially unchanged from last week.

10:00 a.m. EST: October’s Leading Indicators (Risk: Neutral, Market Reaction: Moderate): October’s leading indicator index will likely show its seventh consecutive month of positive readings.  The current Bloomberg consensus forecast is expecting a +0.4% rise for the month, compared to a +1.0% increment in September.  The biggest positive contributions for the index will likely come from the yield curve, initial jobless claims, and stock prices, while the University of Michigan’s consumer expectations index should be the largest negative factor.

10:00 a.m. EST: November’s Philadelphia Fed Survey (Risk: Negative, Market Reaction: Moderate): Recent weakness in the Philly Fed’s expectations index may catch up with the current conditions index potentially placing some pressure on November’s headline number.  Nevertheless, the current Bloomberg consensus forecast is for a reading of 12.0 compared to 11.5 in October.

10:30 a.m. EST: EIA Natural Gas Report (Risk: Neutral, Market Reaction: Moderate): This report highlights domestic natural gas inventories, which could have a significant impact on the energy sector.

4:30 p.m. EST: Fed Balance Sheet & Money Supply (Risk: Neutral, Market Reaction: Marginal): Since the Fed’s shift to quantitative easing, the balance sheet has become one method to measure to the Fed’s effectiveness.  The market will pay close attention to the reserve bank credit component, which measures factors supplying   providing reserves into the banking system.  The Fed’s balance sheet fell slightly last week to US$2.117trn from US$2.147trn a week prior.    The fed’s balance sheet has slowly been shifting away from emergency lending facilities to Treasuries, agency debt, and mortgage-backed securities to help moderate long-term interest rates.

4:45 p.m. EST: Richard Fisher, Dallas Federal Reserve Bank President, will give the closing address to the Cato Institute’s annual monetary policy conference in Washington

Friday, Nov. 20

Charles Plosser, Philadelphia Federal Reserve Bank President, will be speaking at the Global Interdependence Center conference on food and water in Singapore.

Enjoy the weekend!

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Retail Sales Data Indicates a Strengthening Consumer

October 14th, 2009 Michael McDonough Comments off

Retail sales fell -1.5% in September, versus a revised +2.2% (previously +2.7) increment in August.  Excluding autos sales rose +0.5% in September, compared to a revised +1.0% (previously +1.1%) change in August .

Retail Sales

Despite a still worsening employment situation, over the last several months retail sales (ex-autos) have demonstrated an upward trend, albeit at a slow pace.  This is somewhat surprising, but pretty good news for the overall economy.  It is widely accepted that the US will return to growth this quarter due to a turning in the inventory cycle.  But, without a return in final demand (personal consumption) these positive effects would likely only be temporary.  Therefore, continued improvements in retail sales, especially into the holiday season, could offset temporary increments in government spending, and eventually bring final demand back to levels that could sustain increases in manufacturing.

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US Economics Week Ahead: A Shortened Week with a Big Punch

October 10th, 2009 Michael McDonough Comments off

Despite a holiday on Monday, we have a busy week on all fronts, combing a deep economic calendar with a flurry of critical earnings releases.  On the economics front the two most important indicators are retail sales on Wednesday and CPI on Thursday.  September’s retail sales could face some negative pressure on the back of the termination of the ‘Cash for Clunkers’ program, while the CPI should remain well within comfortable levels.  Other indicators of note are the FOMC minutes, the Philly and NY Fed manufacturing surveys, consumer sentiment, and industrial production.

There have also been indications that the government may extend and even expand the first time home buyer tax credit.  This would be an important development as estimates indicated that 25% of recent home sales may be attributable to the program.  But, if you recall, the impact from the ‘Cash for Clunkers’ program diminished significantly after its first extension as those wanting to take advantage of the program already had. However, the clunkers program was only extended and not expanded.  The bottom line is the housing sector facing growing foreclosure levels and a weak labor market can still use all the help it can get and any extension to the program would be a positive.

But, earnings releases from several major banks and technology companies could usurp the market’s attention away from the economic indicators.  Some of the week’s main releases will be coming from Intel Corp (INTC) and Johnson & Johnson (JNJ) on Tuesday, JPMorgan Chase & Co (JPM) on Wednesday, Goldman Sachs (GS) and IBM (IBM) on Thursday and Bank of America (BAC) and General Electric (GE) on Friday.  Additionally, the Senate Finance Committee is set to vote on Tuesday on the Baucus Bill for healthcare reform.

Here is the rest of this week’s US calendar:

Monday October 12th:

Columbus Day Holiday

Tuesday October 13th:

7:30AM: Christina Romer, Chair of the Council of Economic Advisers, will speak at the NABE annual meeting

7:45AM: ICSC-Goldman Store Sales (Risk: Negative, Market Reaction: Marginal): This weekly index tracks aggregate store sales across major US retailers, accounting for roughly 10% of total retail sales.  Given recent data supporting an increasing US saving rates and a worsening employment situation, this index could face some downward pressure.  Last week’s number indicated a weekly increment of 0.3% in store sales compared to a gain of 0.1% a week prior.

8:55AM: Redbook (Risk: Negative, Market Reaction: Marginal): The Redbook is a weekly measurement of chain stores, discounters, and department store sales.  This indicator tends to be less significant than the ICSC-Goldman Store Sales in forecasting retail sales.  According to the Redbook store sales were down -1.9% last week on a year over year basis.

12:00PM: Donald Kohn, Federal Reserve Vice-Chair, will speak at the NABE annual meeting

1:15PM: William Dudley, NY Federal Reserve Bank President, will speak at the Institute of International Bankers.

2:00PM: Treasury Budget (Risk: Neutral, Market Reaction: Marginal): The current Bloomberg consensus for September’s US government budget deficit is –US$31.0bn compared to –US$111.4 a month prior.  Large deficits have led to record levels of US treasuries auctions, which in some instances have placed downward pressure on rates and in a few cases the growing deficit has even sparked some mild concerns over the US’s risk free credit rating. To help put this into perspective; year to date the government’s budget deficit has totaled US$1.378trn compared to $500.5bn a year ago.  Historically, during the month of September the government’s budget shows a strong surplus due to quarterly filings and corporate returns.

Wednesday October 14th:

7:00AM: MBA Purchase Applications (Risk: Neutral, Market Reaction: Marginal): This index, which tracks new mortgage applications tends to be a reasonable forward looking indicator for home sales, but issues including customers filling out numerous applications could skew the index.  Last week’s data showed a jump of 16.0% on the back of lower mortgage rates.  The refinance index climbed 18%, while the purchase index rose 13%. Refinances made up 66.3% of all applications last week.

8:30AM: Retail Sales (Risk: Neutral, Market Reaction: Significant): September’s retail sales data should face some downward pressure mostly stemming from the end of the US government’s ‘Cash for Clunkers’ program.  New auto sales collapsed in September to an annual pace of 9.2mn units from 14.1mn in August.  Excluding autos retail sales will likely remain flat for the month.  The current Bloomberg consensus is for the headline number to fall by 2.1%, and for the ex-auto numbers to rise 0.3%.

8:30AM: Import and Export Prices (Risk: Neutral, Market Reaction: Marginal): Import prices likely remained steady in September with a decline in oil prices offsetting increments in other commodities.

10:00AM: Business Inventories (Risk: Neutral, Market Reaction: Marginal): Both wholesale and factory inventories declined in August, which likely indicates business inventories fell during the month.  Additionally, increased auto sales likely led to significant reductions in auto inventories that will be reflected in the month’s data.  The current Bloomberg consensus forecast is for a decline of 0.9% after falling 1.0% in July and 1.4% in June.

2:00PM: FOMC Minutes (Risk: Neutral, Market Reaction: Significant): Investors will be paying close attention to the details behind the Fed’s plan to terminate, albeit at a slower pace, its 1.25trn agency mortgage-back securities purchase program.  In addition to this investors will be looking for any clarification regarding the following sentence in the FOMC statement, “The Federal Reserve will continue to employ a wide range of tools to promote economic recovery and to preserve price stability.”

Thursday October 15th:

8:30AM: Consumer Price Index (Risk: Neutral, Market Reaction: Significant): September’s headline and Core-CPI numbers likely only experienced only marginal gains for the month.  The current Bloomberg consensus forecast is for an increment of 0.1% for the headline number and 0.1% for the core release.  This data should help quell inflation rhetoric for at least another month.   One of the month’s largest price increases will probably come from new vehicles as the ‘Cash for Clunker’ tax credit discounts will no longer be applied.

8:30AM: Empire State Manufacturing Survey (Risk: Neutral, Market Reaction: Moderate): October’s Empire State Manufacturing Survey will likely be little changed from last month, with the current Bloomberg consensus forecast indicating a reading of 18.9, the same as September.  This would be the index’s third consecutive month above 0, which indicates gains for manufacturing in the NY region.

8:30AM: Jobless Claims (Risk: Neutral, Market Reaction: Significant): Initial claims fell substantially last week by 33K to 521K. It is unclear whether or not this is the start of a significant improvement trend in claims or just a seasonal quirk.  Therefore, it will be important to monitor the 4wk moving average and the coming weeks’ releases.  Last week, the 4wk moving average declined to 539,750 from 548,750, this is the lowest level since January.  Despite second derivative improvements these numbers still indicate further deterioration to upcoming payroll numbers, and the unemployment rate, which is very likely to exceed 10% in the coming months. The current Bloomberg consensus is expecting a modest improvement for this week’s initial claims release to 520K from 521K.

10:00AM: Philly Fed Survey (Risk: Neutral, Market Reaction: Moderate): According to the Bloomberg consensus survey October’s Philadelphia Fed manufacturing survey is expected to fall slightly to 12.5 from last month’s release of 14.1.  Despite the expected decline, this would be the survey’s third consecutive month in positive territory.  It will also be important to monitor the new orders sub-component, which slipped slightly in September to 3.3 from 4.2 a month prior.  The employment index should remain well in negative territory.

10:30AM: EIA Natural Gas Report (Risk: Neutral, Market Reaction: Moderate): This report highlights domestic natural gas inventories, which could have a significant impact on the energy sector.

11:00AM: EIA Petroleum Status Report (Risk: Neutral, Market Reaction: Moderate): This report measures US domestic petroleum inventories.  Large unanticipated swings in this index could have a significant impact on energy prices.  Last week this report showed a decline of 1.0mn barrels versus an increment of 2.8mn barrels a week prior.

4:30PM: Fed Balance Sheet & Money Supply (Risk: Neutral, Market Reaction: Marginal): Since the Fed’s shift to quantitative easing, the balance sheet has become one method to measure to the Fed’s effectiveness.  The market will pay close attention to the reserve bank credit component, which measures factors supplying   providing reserves into the banking system.  The Fed’s balance sheet again declined last week to US$2.120trn from US$2.123trn a week prior.  The main catalyst behind the drop was a decrease in central bank liquidity swaps as demand for US$ falls.  The fed’s balance sheet has slowly been shifting away from emergency lending facilities to Treasuries, agency debt, and mortgage-backed securities to help moderate long-term interest rates.

Friday October 16th:

9:00AM: Treasury International Capital (TIC) Data (Risk: Neutral, Market Reaction: Moderate): This report highlights the flow of financial instruments to and from the U.S. It indicates foreign demand for U.S. financial instruments and thus tends to have a stronger impact on the dollar and the bond markets than it does on equities.  But, given the recent record levels for treasury auctions, it will be interesting to monitor foreign demand for US debt.

9:15AM: Industrial Production (Risk: Negative, Market Reaction: Significant: The current Bloomberg consensus survey is forecasting an increment of 0.2% for industrial production in September after gaining 0.8% in August and 1.0% in July.  A large portion of last month’s gain came from the restocking of auto inventories.  But, a 0.5% decline in manufacturing hours worked in September coupled with a drop off in car sales could place negative pressure on September’s release.  The consensus forecast indicates there will be no change in capacity utilization, which is expected to remain at 69.6%.

9:55AM: Consumer Sentiment (Risk: Neutral, Market Reaction: Significant): The Bloomberg consensus forecast is presently anticipating that October’s preliminary consumer sentiment number will come in at 74.0, compared to a prior reading of 73.5.  A weakening labor market offset by strong equity performance and marginally weaker energy prices during the month makes the possible outcomes of this month’s sentiment release somewhat volatile.  The range for the Bloomberg consensus forecast presently stands between a low of 71.0 and a high of 76.0.

10:15AM: Richard Fisher, Dallas Federal Reserve Bank President, will deliver the keynote address at a conference co-sponsored by SMU’s Cox School of Business

Enjoy the weekend!

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Retail Sales & NY Manf. Survey Better Than Expected; PPI Higher than Anticipated

September 15th, 2009 Michael McDonough Comments off

August’s Retail Sales rose 2.7%, compared to a consensus forecast of +2.0% and a previous reading in July of -0.1%.  The ex-autos component of retail sales  came in at 1.1%, versus a consensus forecast of +0.4% and a previous reading of -0.6% in July.  Therefore, what is typically a bump in sales due to better than anticipated back-to-school spending has been replaced to some extent by the temporaneous effects of the US government’s Cash for Clunkers program and higher gasoline prices.  Ex-autos and ex-gas us retail sales increased a more modest +0.6%.  Weakened consumer confidence stemming from a deteriorating labor market–albeit at a slower pace–coupled with consumers hesitations toward borrowing and banks unwillingness to lend should keep retail sales suppressed for some time.  However, modestly upbeat performance excluding autos and gas could be the beginning of longer-term improvements, and should be monitored closely.

September’s Empire State Manufacturing Survey came in at 18.9 compared to 12.1 in August, and a Bloomberg consensus forecast of 14.0.  This is the index’s second month in a row to finish in positive territory.  This is the highest reading for the index since Nov. 2007.  Look at the details, new orders rose to +19.84 from +13.43 in August, prices paid jumped to +20.24 from +13.83, and the 6-month outlook index finished at +52.29 from +48.22.  Positive performance in the news orders index should help  to sustain upward momentum in future releases.  There was however some weakness in the shipments index, which fell to 5.3 from 14.1 in August.

August’s PPI rose by +1.7%, versus a consensus forecast of +0.8%, while the Core-PPI rose by +0.2%, compared to a consensus forecast of +0.1%

Overall markets are reacting positively to the news with equities showing some gains in pre-market trading, and treasuries falling on the back of the pricing and sales news.

Retail Sales By Group:

Group Aug-09 Jul-09 Aug (y/y)
Retail & food services 2.7% -0.2% -5.3%
(excl. motor vehicle & parts) 1.1% -0.5% -6.2%
Retail 3.0% -0.2% -6.0%
Motor vehicle & parts dealers 10.6% 1.5% -1.0%
Furniture & home furn. Stores -1.6% -0.9% -12.8%
Electronics & appliance stores 1.1% -1.0% -10.4%
Building mat,garden eq., & supplies dlr. -1.2% -1.8% -13.6%
Food & beverage stores 0.5% -0.3% -1.1%
Health & personal care stores 0.4% -0.4% 2.9%
Gasoline stations 5.1% -1.5% -26.7%
Clothing & clothing accessories stores 2.4% 0.2% -5.1%
Sporting goods, hobby, book & music stores 2.3% -0.6% -0.4%
General merchandise stores 1.6% -0.3% -0.7%
Miscellaneous store retailers 0.2% 0.1% -3.3%
Nonstore retailers 0.1% 0.0% -2.6%
Food services & drinking places 0.3% -0.2% 0.7%

Empire State Manf. Survey Diffusion Indices:


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