Import Prices Decelerate, Retail Sales Ex Autos Rise, Inventories Rise Slightly

- The Import Price Index for April rose 1.8% versus estimates of a 1.6% gain and a 2.9% increase in March.

- Advance Retail Sales for April fell .2% versus estimates of a .2% decline and a .2% increase in March.

- Retail Sales Ex Autos for April rose .5% versus estimates of a .2% gain and an upwardly revised .4% increase in March.

- Business Inventories for March rose .1% versus estimates of a .4% increase and a .5% gain in February.

BOTTOM LINE: Prices of goods imported into the US increased 1.8% in April, led by a jump in fuel costs and metals, Bloomberg said. The cost of imported petroleum and petroleum products increased 4.4% versus a 9.2% gain the prior month. Compared with a year earlier, petroleum prices soared 57.2%. Prices of unfinished metals jumped 7.1% last month. The price of consumer goods rose just .2% in April. As well, the price of goods from China rose .2% for the month. The 10-year TIPS spread, a good gauge of inflation expectations, is unch. at 2.41% on the report. This is still down from 2.68% on March 13^th. Despite the production disruptions related to the earthquake in China, the S&P Goldman Agriculture Commodity Spot Index is down for the second day in a row. This index is also down 18.1% from its March 12^th high. I still think inflation fears have peaked for the intermediate-term and that inflation gauges will decelerate through year-end as the dollar strengthens further and commodity prices fall.

Retail sales excluding autos rose .5% in April, more than twice what economists had forecast, Bloomberg reported. Treasuries are falling after this report indicated consumers are holding up well in the face of headwinds and that the Fed has finished lowering interest rates. Restaurant sales rose .9%, the most this year. Excluding autos, building materials and gasoline, the category used to calculate GDP, sales rose .4% in April versus a .4% gain the prior month. Filling station sales fell .4% even as gasoline prices rose as consumers purchased less of the fuel. Spending is projected to jump 2.3% in the third quarter as the bulk of the $117 billion in tax-rebate checks are spent. The government had sent out $27.2 billion in rebates as of May 9^th. Weekly retail sales rose 2.0% this week, up from a 1.6% gain the prior week and up from a .5% increase the week of March 4^th. Weekly retail sales have averaged a 1.8% weekly gain the last five weeks, up from a weekly average gain of 1.1% the prior five weeks and up from a weekly average gain of .6% the five weeks before that. Retail sales should continue to improve through year-end on improving consumer sentiment, rising stock prices, diminishing housing fears, decelerating inflation, lower energy prices, low interest rates and an improving job market.

Inventories are US businesses rose less than forecast in March, Bloomberg reported. The .1% gain in the value of unsold goods at factories, retailers and wholesalers was the smallest since March 2007. Sales rose 1%. Companies had enough goods on hand to last 1.27 months at the current sales pace, down from 1.28 months worth in February. Auto inventories fell .9%. Inventories at general merchandise stores, which include department stores, fell 1.1%. Overall, inventories at retailers fell .5% during the month. I expect business inventories to rise more in April in anticipation of improving demand.