𝙐𝙎 𝙋𝙧𝙤𝙙𝙪𝙘𝙚𝙧 𝙋𝙧𝙞𝙘𝙚 𝙄𝙣𝙛𝙡𝙖𝙩𝙞𝙤𝙣
The US saw what many are seeing as a surprise decrease in producer prices for final demand, with a 0.1% month over month decline. This thwarted market expectations of a 0.3% increase, and it marked the first decrease in this metric since September 2022. Both goods and services prices experienced declines, with goods prices falling by 0.2% and services prices remaining unchanged.
The drop in goods prices is especially notable, as they had experienced a sharp increase of 1.2% in January. However, in February, food prices dropped by 2.2%, which is a significant contributor to the overall decrease in goods prices. Energy prices also fell by 0.2%, which was another reason for the decline.
Producer prices are a leading indicator of inflation and one the FED typically looks at more closely than CPI, It measures the cost of goods and services at the final stage of production. Therefore, the fact that there was a decline in producer prices in February, as well as setting a trend to falling producer prices may be seen as a sign inflation is waning in the long term.
It's worth noting that the sharp increase of 1.2% in prices observed in January is likely an anomaly and subject to strong annual adjustments. January is usually the month when the Bureau of Labor Statistics updates its seasonal adjustments, which can result in heavy revisions to the data. As a result, it's not uncommon to see large swings in producer prices during this period.
It's important to consider the trend over a longer period of time rather than focusing solely on the monthly data. This is something the FED has highlighted as part of the way they are looking at the data, and so I would not be surprised that this report gives the FED confidence that their efforts to manage inflation are working.
𝙍𝙚𝙩𝙖𝙞𝙡 𝙨𝙖𝙡𝙚𝙨
Retail sales in the US experienced a 0.4% month over month decline, which was worse than market forecasts of -0.3%. This follows a significant 3.2% surge in January, which was the largest increase since March of 2021. The decline in February was broad-based, with sales falling in a number of categories, including furniture stores, food services and drinking places, miscellaneous retailers, motor vehicles and part dealers, clothing stores, and gasoline stations.
The largest decrease in sales was seen at furniture stores, which fell by 2.5%. Food services and drinking places also saw a significant decline of 2.2%. Miscellaneous retailers and motor vehicles and part dealers saw declines of 1.8%, while clothing stores and gasoline stations saw smaller declines of 0.8% and 0.6%, respectively.
Some categories that saw increases in sales were Nonstore retailers, which includes online retailers, saw a 1.6% increase in sales, while health and food and beverages stores both saw increases of 0.9% and 0.5%, respectively. General merchandise stores and electronics and appliances also saw modest increases of 0.5% and 0.3%, respectively.
Excluding autos, sales were down 0.1%, which matches consensus estimates. showing that the decline in sales was not solely due to a decrease in auto sales. Excluding both gas and autos, sales were flat, which suggests that gasoline prices did not have a significant impact on overall retail sales in February.
Overall declining inflation and marginally affected retail sales are a good combination for markets. We certainly don’t want to see retail sales skyrocket, nor do we want to see inflation set a new trend higher. In combination with all the other news we have had in the last week, the likelihood of a dovish FED is a lot higher. It is possible that fears over an economic downturn with a focus on banks in particular will take focus and influence the stock market to a greater extent going forward.
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