Ahh the longest day of the year, the start of astronomical summer. Meteorological summer starts on June 1. Memorialogical summer is celebrated by most of us, recognizing summer to begin on Memorial Day weekend. Schoological summer is what I celebrated when I was young, summer began with the expiration of the last minute of the school year. Whatever your preference, enjoy the season and make the most of it. Opportunities to celebrate returned this year after being cancelled last year. The county fairs are just starting. Community celebrations with parades can be found in towns across our nation. Car shows are scheduled for most Saturday evenings across the nation. 2021 should be the year to make up for last year and hit every event you can.
Three related items for this week, the retail sales for May, the PPI for May and the industrial production for May were all recently released.
Retail sales overall were down 1.3% month over month from April to May. Initial retail sales were up 11.3% in March due to the reopening of the economy. Consumers quickly exhausted the pent up demand for “stuff” in April when the retail sales were up only .9%. In May retail “stuff” sales fell as consumers moved on to spending on services and away from difficult to find hard goods. Travel spending rose nicely in May.
Areas of major decline in the retail sales arena were building material, down 5.9%, autos down 3.9% and electronics down 3.4%. All of these could be related to supply and inventory shortages. You cannot sell what is not on the shelf. The autos and the electronics undoubtedly were related to the lack of chips. We will have to see what happens once the supply chain fills up to see if the consumer is really done with goods purchases or if the May numbers really were the shift from goods to experiences.
One item of note. The retail numbers are impacted by inflation. This makes analyzing the unit sales much more important. The sales numbers are inflated by the price increases meaning that the underlying units went down by more than the 1.3% assuming the consumer prices increased by as much or more than the PPI in May. The producer price index rose by .7% in May which was tame compared to most expectations. This number did not include food or energy prices. Because of the condition of the economy a year ago, the year over year number is skewed and unreliable to indicate what is really going on in the economy. The better assessment is month over month for 2021. In the case of the PPI the numbers have risen a total of 2.6% for the first 5 months of the year.
The Federal Reserve has had a long standing target for inflation at just over 2%. The comments by the St. Louis Fed President, Jim Ballard on Friday woke the markets to the possibility of raising interest rates sometime in 2022 or 2023. The market likes low rates to push economic activity, lending and growth faster. Any talk of a rate increase is considered a real buzz kill. It is not just rate increases the market is concerned about, but also tapering. As the Fed cuts the purchase of t-bills, mortgage backed securities as well as corporate bonds. As the Fed cuts its purchases, interest rates will rise making borrowing more expensive, creating a bit of a head wind for the economy.
in May Industrial production grew by .8%. What boosted the production numbers surprisingly was the automotive sector. The automobile sector grew by .5% indicating that the chip issue might be abating. The real indicator will be if the dealership lots begin to fill up. At this point they remain as empty as the winter coat section at most retailers right now.
Have a great week.