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June 14, 2005
Low Prices, Low Sales
U.S. retail sales staged their sharpest drop in nearly a year in May while producer prices showed the biggest decline in nearly two, according to government data on Tuesday that may ease inflation fears but show consumers may be faltering.
Retail sales dropped a surprisingly large 0.5 percent as Americans bought fewer cars and cut back on clothes shopping, the Commerce Department said...
The overall retail sales drop was the largest since a matching fall last June, the Commerce Department said, and exceeded the 0.2 percent fall forecast by analysts. It was also the first outright decline since last August and came on the heels of an upwardly revised 1.5 percent gain in April.
Excluding autos, which can swing widely from month to month, retail sales dropped 0.2 percent after a 1.4 percent jump in April. It was the first dip ex-autos since April of last year.
A separate report showed U.S. producer prices plunged a sharper-than-expected 0.6 percent last month on tumbling energy prices and lower food costs...
On the price front, the Labor Department said prices were surprisingly tame even outside food and energy.
Without those volatile sectors, the producer price index, a gauge of prices received by farms, factories and refineries, rose a mild 0.1 percent...
The department said energy prices plunged 3.5 percent, the biggest drop since April 2003. Gasoline prices dropped 9.9 percent, heating oil costs fell 7.8 percent and the cost of liquefied petroleum gas was off 9.8 percent.
Producer prices have followed an uneven upward path as energy costs gyrate with the cost of crude oil. Over the past 12 months, energy prices have risen 10.2 percent, a driving force behind the 3.5 percent rise in producer prices.
Crude oil prices, which hit a record high above $58 a barrel in early April, closed as low as $46.80 last month. But they have since moved back up above $55, suggesting some of May's producer-price relief could prove short-lived.
The May CPI report comes out tomorrow. Look for more disinflation there as well, especially in light of the weak May retail sales report. We may even begin creeping back to the days of late 2003 when "deflation" was on everybody's lips.
Seems like just yesterday we were talking about "stagflation." It's a fast changing world.
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