Retail Sales Strong, NY Manufacturing Still Muted, Net Long-Term TIC Flows Decelerate, Business Inventories Rise

- Advance Retail Sales for March rose .7% versus estimates of a .6% gain and an upwardly revised .5% rise in February.
- Retail Sales Less Autos for March rose .8% versus estimates of a .9% gain and an upwardly revised .4% increase in February.
- Empire Manufacturing for April fell to 3.8 versus estimates of 7.5 and a reading of 1.9 in March.
- Net Long-term TIC Flows for February fell to $58.1 billion versus estimates of $75.0 billion and $98.8 billion in January.
- Business Inventories for February rose .3% versus estimates of a .3% gain and a .2% rise in January.

BOTTOM LINE: Retail Sales in the US rose in March by the most in three months as rising incomes and better weather ensured consumers would continue to drive economic growth, Bloomberg reported. “Concerns about the consumer’s staying power have been greatly exaggerated,” said Richard DeKaser, chief economist at National City Corp. The economy has created about 2 million jobs in the last year, the unemployment rate is a historically low 4.4% and Americans’ net worth is at record highs despite the housing slowdown. I expect retail sales to moderate a bit in April before another strong showing in May.

Manufacturing growth in NY remain subdued in April. The New Orders component of the index rose to 3.9 from 3.1 in March. The Inventories component rose to 7.1 versus 4.7 in March, which was the first rise this year. The Prices Paid component rose to 40.5 versus 30.2 in March. I continue to believe manufacturing activity is improving overall modestly as inventory de-stocking runs it course.

Net international buying of US long-term securities slowed in February, Bloomberg reported. Including short-term securities, foreign investors purchased a net $94.5 billion versus $79.6 billion the prior month. International purchases of US stocks fell to a net $13.5 billion, compared with net purchases of $22.8 billion the previous month. The DJIA fell 3.3% on Feb. 27 on worries over the housing market. Many economists point to the difference between the US trade gap and securities purchased by international investors as evidence of how easily the US can finance its external obligations. I expect international investors’ demand for US assets to remain strong as the dollar firms, the twin deficits shrink further and economic growth remains healthy compared to other industrialized economies.

Business Inventories rose less than sales in February, a positive sign for factory production, Bloomberg reported. At the current sales pace, the amount of goods on hand is 1.29 months. I continue to believe substantial inventory de-stocking led to substantially below trend growth in 1Q, however inventory rebuilding should begin adding to overall economic growth this quarter.