Morning Report: Retail Sales come in better than expected 5/13/16

Stocks are lower this morning on no real news. Bonds and MBS are up small.

Retail Sales increased 1.3% month-over-month, topping Wall Street forecasts. Autos, grocery and online led the charge. Ex-autos, gas and building materials, it increased 0.9%. We have had a laundry list of retailers miss earnings lately (Macy’s, JC Penney, Kohls, Nordstrom), so investors were probably expecting the worst. Given all of the weak economic data lately, this is one decent data point. We are seeing some sell-side firms take up Q2 GDP estimates on the number.

The chart below is retail sales as a percentage of GDP. It is not a seasonally adjusted number, so holiday spending accounts for the spikes. However, you can see that post the real estate crash, retail sales have been a much smaller percentage of GDP than they were for the 90s and the bubble years. Perhaps spending during the 90s and the bubble years was driven by the cash-out refi and now that is gone. If so, that would certainly help explain why growth has been so tepid. Or it simply means the Great American Deleveraging Process has further to go.

Inflation at the wholesale level remains well below the Fed’s target. The Producer Price Index rose 0.2% in April and is up 0.9% year-over-year.

Business inventories climbed 0.4% in March, while consumer sentiment jumped.

Janet Yellen doesn’t rule out the possibility of negative interest rates, however they would be a last resort.

The National Association of Homebuilders estimates that 14 million people are priced out of the housing market due to government regulation.

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