The Atlanta Fed's macroblog provides commentary and analysis on economic topics including monetary policy, macroeconomic developments, inflation, labor economics, and financial issues.

Authors for macroblog are Dave Altig, John Robertson, and other Atlanta Fed economists and researchers.

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May 11, 2007

Reports I'm Having A Hard Time Getting Excited About

From Bloomberg:

U.S. retail sales are slowing and inflation is under control, two government reports showed today, further reducing any prospect that the Federal Reserve will raise interest rates.

Retail sales unexpectedly dropped 0.2 percent in April after a revised 1 percent gain the prior month, the Commerce Department said today in Washington. At the same time, figures from the Labor Department showed producer prices excluding food and fuel costs were unchanged for a second month.

The sales report adds to concern that a pullback in consumer spending, which accounts for more than two-thirds of the economy, will jeopardize the expansion. Signs of a further slowdown contrast with the Fed's insistence that inflation is the biggest risk and that the economy will likely grow at a "moderate'' pace.

OK, let's try a test.  Which one of these months looks unlike the others?




If you picked April 2007 you've a keener eye than I.  It's true that the trend in sales growth has not been favorable over the past year...




... but we could have said the same thing had sales growth registered something closer to the 0.4 percent gain expected by forecasters.  What's more, if it's trends we are after the year-over-year growth rate of sales excluding motor vehicles and parts has more or less stabilized over the course of the year (after contracting sharply through 2006):




As for the inflation outlook, the emphasis has been on the "core" PPI and not the headline number:

The last time so-called core producer prices went two months without an increase was at the end of 2005. Including food and fuel, prices paid to factories, farmers and other producers rose 0.7 percent after a 1.0 percent gain in March, the Labor Department said.

It may be true that those tame PPI numbers will ultimately translate to lower consumer prices...




... but arguably the PPI report is telling us more about headline CPI, at least in the near term:




The Bloomberg article included this assessment of the situation:

"The economy is really the issue right now, not inflation,'' said Joel Naroff, president of Naroff Economic Advisors in Holland, Pennsylvania...

Unless you held that opinion yesterday, I'm not sure why these reports would lead you to that conclusion today.

May 11, 2007 in Data Releases | Permalink


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» Deciding what to worry about from Econbrowser
Dave Altig ([1],[2]) is your source for wisdom about the latest retail sales figures.... [Read More]

Tracked on May 12, 2007 9:08:11 AM


Time to thank you for those charts again...to correct those opinions about WalMart's poor numbers. Obviously, trendier retail outlets did better (revisit the colorful chart 1 to see if it ain't so) and the overall picture is not as bad as all that.
Dang those are nice graphs!

Similarly, auto sales look miserable if you are following The Big Three, but if you were to look at the Masserati, Ferrari, or Bugati...things would look different. You may not think it's fair to pick on luxury, but people pick on Walmart which is not representative either...
So today's data (the ex auto, ex food, ex energy) don't move you past yesterday's data.
The Nabob thinks this partial picture conceals the stagflation rate which he measures at around 10%...convincing me...who does think that the Bloomberg writer is working in the right direction convincing all those who weren't convinced yesterday: the economy, the inflation not so much.

Posted by: calmo | May 12, 2007 at 01:12 AM

I pulled these two tidbits from Doug Noland @ PrudentBear.
"Merrill Lynch filed its first quarter 10Q this week. We now know that Total Assets expanded $140.5bn, or 67% annualized, to $982bn during the quarter. Assets were up $250bn, or 34%, y-o-y. This puts combined Big Five (Morgan Stanley, Merrill Lynch, Goldman Sachs, Lehman, and Bear Stearns) first quarter asset growth at an incredible $379bn (41% growth rate) to $4.033 TN. Big Five Assets inflated $843bn over the past year, or 26%. For comparison, Bank Credit is up about $580bn y-o-y.

Identical to their Wall Street brethren, Merrill’s growth was predominantly in the area of securities finance. On the Asset side, “Securities Financing Transactions” jumped $114bn during the quarter to $410bn. On the Liability side – the IOUs created through the expansion process - “Payables under Repurchase Agreements” jumped $66bn to $289bn. Adding JPMorgan and Citigroup to the mix, “Big 7” combined “repo”/“fed funds” Liabilities expanded an unprecedented $267bn during the quarter, or 62% annualized. Forget the traditional M2 and M3 aggregates - the current monetary expansion is dominated by a historic yet unrecognized inflation in “repo” instruments.

From the New York Fed’s weekly Primary Dealer Transaction Report, we see that Primary Dealer “repo” positions (in Treasuries, agency, and MBS) are up an astounding $533bn y-t-d, or 45% annualized, to $3.981 TN. This is another key data point (along with $520bn y-t-d growth in foreign reserves, 17.3% fiscal y-t-d growth in individual federal tax receipts, 160% y-o-y Chinese stock market gains, $2.0TN y-t-d global announced M&A, and a prospective $900bn U.S. Current Account Deficit, to name a few) confirming the degree to which the monetary system has run amok. And it is certainly no coincidence that “repos” are these days expanding in similar degree to foreign central bank reserves.

May 10 – Bloomberg (Seyoon Kim): “Former U.S. Treasury Secretary Lawrence H. Summers comments on global imbalances and the U.S. current account deficit. Summers spoke to investors at a conference in Seoul… The shortfall in the U.S. current account, the broadest measure of trade because it includes transfer payments and investment income, was $195.8 billion in the first quarter, amounting to about 5.8% of the economy. The U.S. needs to attract about $2.1 billion a day to fund the gap. ‘The current account deficit is not financing investment, it is financing consumption. ‘It’s important to understand the current account deficit is not being financed by private long-term investment flows. It is being overwhelmingly financed by short-term debt flows from official sectors of countries in Asia and oil-producing countries.’”


Posted by: bailey | May 12, 2007 at 07:00 AM

A couple of suggestions:

Look at the real (not nominal) year-over-year retail sales numbers as that may give you a more interesting chart.

Alternatively, look at retail sales ex-gas and food.

If you posted those charts, your readers would appreciate the value added as they get to the crux of the issue: how is the consumer fairing?

Posted by: David Pearson | May 12, 2007 at 09:08 AM

Thanks for that bailey. It gives me the impression that the Fed has their public releases and carefully worded statements that we are supposed to pour over and compare with the previous reports and thereby achieve "transparency". And then there are the meetings with the major investment banks: (from Noland)
"From the New York Fed’s weekly Primary Dealer Transaction Report, we see that Primary Dealer “repo” positions (in Treasuries, agency, and MBS) are up an astounding $533bn y-t-d, or 45% annualized, to $3.981 TN."
Another world that appears to have little "tightening" in it.

Posted by: calmo | May 13, 2007 at 01:29 AM

Dave -

Your post shows just how noisy the data is and the folly of hanging on each month's new data. Second, bears will be bears and there's always some datum that will verify their viewpoints. Beyond that I wonder (1) does the data really measure the thing we are interested in correctly (e.g., GDP and inflation) and (2) how much reliance can you place on monthly numbers which are expressed as annual rates when small inaccuracies in measurement (especially when estimating real amounts) can cause big swings in the annual amounts?

Posted by: Rich Berger | May 13, 2007 at 12:54 PM

Here's a report excerpt you should be pleased about. Dataquick (Andrew LePage) reported on 5/16 that in Ca, "adj. for inflation, mtg. payments are up only 8.2% above the spring 1989 peak of the prior real estate cycle."
Pretty small increase, huh?

Posted by: bailey | May 17, 2007 at 08:19 AM

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