U.S. Economic Growth Weakens as Sales, Prices Fall
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Economic growth is weakening in America as consumers have less money to buy things, causing retail sales and prices to fall.
The Atlanta Federal Reserve’s GDPNow model has revised downwards its 1st quarter GDP growth expectations, down from 2.2% to 1.9%, driven by weak retail sales in the United States. The GDPNow has been more accurate, and less optimistic, in predicting economic growth by using a large data set of various economic metrics, whereas the Federal Reserve’s chairs have been significantly more cheerful about America’s prospects.
Economic growth is weakening in America as consumers have less money to buy things, causing retail sales and prices to fall.
The Atlanta Federal Reserve’s GDPNow model has revised downwards its 1st quarter GDP growth expectations, down from 2.2% to 1.9%, driven by weak retail sales in the United States. The GDPNow has been more accurate, and less optimistic, in predicting economic growth by using a large data set of various economic metrics, whereas the Federal Reserve’s chairs have been significantly more cheerful about America’s prospects.
Weak Sales
Partly driving the weakness in GDP growth is a decline in sales and a low increase in business inventories. According to the Census Bureau, trade and manufacturers’ inventories rose 0.1% on a month-over-month basis and 1.8% on a year-over-year basis in January 2016, while total sales actually fell on both an adjusted and unadjusted basis. Total sales fell from $1.31 billion in January 2015 to $1.296 billion in January 2016 on an adjusted basis, and were down from $1.2 billion to $1.16 billion on an unadjusted basis.
The biggest declines in sales were seen at merchant wholesalers, whose sales fell 1.3% on a month-over-month basis and a shocking 3.1% on a year-over-year basis. Manufacturers’ sales fell 2.3% on a year-over-year basis, in part a result of weaker commodity prices.
A separate study of retail and food services sales also saw a decline. The Census Bureau’s Advance Monthly Sales for Retail and Food Services report for February saw that Americans spent less at retail outlets compared to the prior month. Total retail and core retail sales fell 0.1% on a month-over-month basis.
As in prior months, weak retail sales were a result of poor gas sales, although disappointing auto sales were also a factor. Excluding these two categories, retail sales rose 0.3%.
PPI Deflation Accelerates
Because of weak commodity prices and weak demand in the retail sector, producers are finding prices stuck in deflation. As a result, the Producer Price Index fell 0.2% on a month-over-month basis, although the Core PPI was flat from the prior month.
Nonetheless, analysts had expected Core PPI to rise, and the flat prices are a substantial deceleration from the 0.4% prior increase in Core PPI.
The largest surprising indicator of inflation is a significant decline in final demand goods PPI, which fell 0.6% in February from the prior month. Final demand good foods fell 0.3%.
Again, the decline was a result of lower oil prices, as final demand goods excluding food and energy rose 0.1%. Final demand goods have seen price declines for all but three of the last 14 months.
