Wednesday, June 13, 2007

Import Prices Rise, Retail Sales Jump, Business Inventories Rise as Sales Increase

- The Import Price Index for May rose .9% versus estimates of a .3% gain and a 1.4% increase in April.

- Advance Retail Sales for May rose 1.4% versus estimates of a .6% gain and a -.1% decline in April.

- Retail Sales Less Autos for May rose 1.3% versus estimates of a .7% increase and a .1% gain in April.

- Business Inventories for April rose .4% versus estimates of a .3% gain and unch. in March.

BOTTOM LINE: Prices of goods imported into the US rose more than forecast in May on higher prices for oil and industrial supplies, Bloomberg said. Compared with a year earlier, prices of imported goods rose 1.1% in May versus a 2.1% year-over-year increase in April. The price of imported petroleum and petroleum products rose 2.7% in May versus a 6.6% increase the prior month. Prices of goods from China rose .3% in May. I continue to believe inflation measures will further decelerate through year-end.

Retail sales in the US rose by the most in more than a year in May, easing concern that record gas prices and a slowdown in housing would damage consumer spending, Bloomberg reported. More jobs, higher stock prices and wages rising more than inflation are helping to boost spending. The increase in sales was the largest since January 2006. As well, sales excluding gas rose the most since July of last year and sales at dept. stores jumped 1.3%, the most since October 2005. I continue to believe consumer spending will bounce back to above-average levels before year-end as gas prices fall, interest rates head back down, inflation decelerates further, stocks rise more, unemployment remains historically low, housing sales stabilize at relatively high levels and wages continue to outpace inflation.

Inventories at US businesses rose more than forecast in April as sales increased, signaling companies will probably ramp up orders as demand improves, Bloomberg reported. At the current sales pace, the amount of goods on hand fell to 1.27 months’ worth, the lowest since August of last year, from 1.28 months in March. Inventory de-stocking subtracted 1 percentage point from 1Q gdp growth. I suspect inventory rebuilding will help boost economic growth back around 3% this quarter.

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