Import Prices Rise on Energy, Retail Sales Fall Slightly, Inventories Hit Record Low as Sales Jump

- The Import Price Index for July rose 1.7% versus estimates of a 1.0% gain and an upwardly revised 2.9% increase in June.

- Advance Retail Sales for July fell .1% versus estimates of a .1% decline and an upwardly revised .3% gain in June.

- Retail Sales Less Autos for July rose .4% versus estimates of a .5% increase and an upwardly revised .9% gain in June.

- Business Inventories for June rose .7% versus estimates of a .5% increase and a .4% gain in May.

BOTTOM LINE: Prices of goods imported into the US rose slightly more than forecast in July, Bloomberg reported. Food prices rose 1.5%, while the price of imported petroleum and petroleum products jumped 4.0%. Capital goods prices rose .3%, after a .1% decline in June. Prices of imported autos, parts and engines gained .1% in June. The CRB Index, the main source of inflation angst, has plunged 18.2% since July 2^nd. This should begin to show up in a meaningful way in August’s inflation numbers. The 10-year TIPS spread, a good gauge of inflation expectations, is only 1 basis point higher today to 2.15%, which is still the lowest since October 2003.

Sales at US retailers fell slightly in July for the first time in five months as record gas prices and tighter credit reduced auto purchases, Bloomberg reported. Excluding cars, sales rose .4%. Sales at auto dealers and parts stores dropped 2.4%. Gasoline use fell 2.1% to an average 9.07 million barrels a day through July, erasing five years of demand growth for the period, the American Petroleum Institute said today. Regular unleaded gasoline reached an average monthly record of $4.06 a gallon in July, according to AAA. The average price of gas nationwide has since fallen to $3.79/gallon as of today. Sales at furniture stores rose 1% in July, the most since January of last year. Electronics outlets saw sales gain .8%. I expect sales to improve modestly in August after the decline in gasoline prices.

Inventories at US businesses rose less than half as fast as sales in June, Bloomberg reported. Sales jumped 1.7%, the most since November. Companies had enough goods on hand to last 1.23 months at the current sales pace, the lowest since records began 16 years ago. Inventories at retailers fell .1% as sales rose .4%. Department store inventories fell .8%. Companies trimmed inventories in the second quarter at a $62 billion annual pace, the fastest decline since 4Q 2001. Despite this drawdown, 2Q GDP rose 1.9%. I still expect inventory rebuilding to help boost US economic growth above expectations during 3Q/4Q as demand surprises on the upside. As well, the GDP deflator will likely subtract less from nominal growth than expected over the intermediate-term on the decline in commodity prices. The Citi eurozone economic surprise index is now -173.50, while the US index is +40.0. The US Dollar Index is rising another .16% on today’s news. The 10-year yield is stable at 3.89%.