Economic Week in Review: Consumers retreat from the register
April 12, 2013
Retailers saw an unexpectedly sharp dip in receipts for March, while members of the Federal Reserve expressed a growing concern over the central bank's ability to maintain its aggressive monetary stimulus policy. Despite some negative economic road signs, the stock market continued its trip into record territory heading into Friday.
For the week ended April 12, 2013, the S&P 500 Index was up 2.3% to 1589 (for a year-to-date total return—including price change plus dividends—of about 12%). The yield on the 10-year U.S. Treasury note was up 3 basis points to 1.75%. (for a year-to-date decrease of 3 basis points).
Retail sales slide
For the second time in the first quarter, consumers are spending less than they did in the prior month, according to a Commerce Department report.
Retail sales dropped 0.4% in March after rising a full 1% in February based on revised data. Excluding cars and gasoline, retail spending dropped 0.2% for the month. The decline in sales was broad-based with auto sales registering a 0.6% drop, sales at electronics and appliance stores falling 1.6%, and consumers spending 2.2% less on gasoline. Two bright spots were furniture and home furnishing stores with a 0.9% increase and restaurants with a 0.7% bump in receipts.
Producer prices sharply decline
The Producer Price Index dropped 0.6% in March. The decline marked the largest one-month dip in wholesale prices since last May. Prices for energy goods dropped 3.4%, with gasoline leading the decline, falling 6.8%. The decrease was the fifth time in the past six months that energy prices have fallen. Excluding food and energy, prices rose 0.2%.
Fed concerned about easy money
The minutes from the March 19–20 Federal Open Market Committee revealed some policymakers were concerned about increased risks resulting from the central bank's aggressive monetary stimulus.
“Concerns at the Fed over the costs of quantitative easing have been growing, and the next few months of data will be vital to policy discussions as the impact of the sequester becomes clearer," said Andrew J. Patterson, a Vanguard economist. "Fed members will be keeping an especially close eye on inflationary pressures as they weigh the benefits and costs of current policy."
The minutes showed a growing sentiment for reducing asset purchases later this year. Skeptical policymakers said they were worried that continuing monetary stimulus could cause instability in the financial system along with a sudden rise in interest rates, and inflation.
Under the latest version of its quantitative easing policy, the Fed is buying $85 billion a month in U.S. Treasuries and mortgage-backed securities. The minutes offered market watchers a glimpse into how the Fed intends to unwind some of its $3.2 trillion balance sheet. Committee members said holding its mortgage-backed securities debt to duration would minimize the potential disruptions to the markets.
The final vote affirming the policy statement was nearly unanimous with only one dissenting member.
Business inventories show modest increase
Business inventories registered a slight increase of 0.1% in February, falling short of analysts’ expectations. The Commerce Department revised its January data to show a 0.9% increase. On the heels of a 1.4% gain in January, growth in retail inventories slowed significantly, rising 0.3% in February. Wholesalers decreased their inventories by 0.3%.
The economic week ahead
Tuesday brings reports on the Consumer Price Index, new residential construction, and industrial production. The Federal Reserve's "Beige Book" report comes out Wednesday, followed by leading economic indicators from the Conference Board on Thursday.
|Summary of major economic reports|
|10-year note yield||S&P 500 Index|
|April 8||+4 bp||+0.6%|
|April 9||+2 bp||+0.4%|
|April 10||FOMC Minutes (March)
Source: Federal Open Market Committee
|April 11||Initial Jobless Claims (week ended April 6)
Source: Labor Department
Producer Price Index (March)
PPI, except food and energy (March)
Retail sales (March)
Business Inventories (February)
|Weekly change||+3 bp||+2.3%|
bp=basis points. 100 basis points equal 1%. For example, if a bond's yield rises from 5.0% to 5.5%, the increase is 50 basis points.
- The economic statistics presented in this report are subject to revision by the agencies that issue them. For more information on the reports mentioned in this article, read Guide to major U.S. economic reports.
- All investing is subject to risk, including possible loss of principal.
- Past performance is no guarantee of future returns. The performance of an index is not an exact representation of any particular investment, as you cannot invest directly in an index.