The Federal Reserve’s Financial Accounts of the U.S. (previously known as the Flow of Funds report) showed that in fourth-quarter 2014 U.S. households saw the largest increase in their net worth since fourth-quarter 2013. While far from being equally distributed, household net worth is now 26% higher than its 2007 pre-recession peak, mainly due to the strong stock market rally in recent years. Meanwhile, the U.S. household debt-to-income ratio fell to its lowest level since 2002 as consumers continued to deleverage as their disposable income increased. We believe that household balance sheets will improve further in the coming quarter as stock prices continue to rise and labor market conditions improve. We expect the improvements in the financial condition of U.S. households to drive solid consumer spending growth in 2015.
The economic releases this week include:
- Retail sales declined by 0.6% in February following a 0.8% drop in January. Retail sales excluding auto sales fell by 0.1% after declining by 0.9% the previous month.
- The Producer Price Index (PPI) declined by 0.5% month-over-month in February after dropping by 0.8% in January. Excluding food and energy prices, the core PPI fell by 0.5% in February, which follows a 0.1% drop the previous month.
- Business inventories were unchanged for the second consecutive month in January.
- Wholesale inventories increased by 0.3% in January after they were unchanged in December (was 0.1%).
- The Treasury announced a $192.3 billion budget deficit for February, which was slightly smaller than last February’s deficit of $193.5 billion.
- The Export Price Index declined by 0.1% month-over-month in February after falling by a revised 1.9% (was 2%) in January while the Import Price Index rose by 0.4% month-over-month after dropping by a revised 3.1% (was 2.8%).
- The University of Michigan Consumer Sentiment Index fell to 91.2 in March from 95.4 in February.
- Initial jobless claims dropped to 289,000 in the week ended March 7 from a revised 325,000 (was 320,000) the previous week. Continuing claims fell to 2.418 million in the week ended Feb. 28.
A Bit Off
The brutal weather that pummeled the eastern U.S. in January and February of this year certainly dampened the will of many Americans to go out and spend money at their local stores, and the persistently sluggish wage growth we’ve seen so far this year hasn’t helped either.
Advance estimates of U.S. retail and food services sales (not adjusted for prices) show a decline of 0.6% in February, which follows the 0.8% decline we saw in January. Year over year, retail sales were still up by 1.7% in February, but this was much weaker than the 3.6% rise we saw in January. Total sales from December 2014 through February 2015 were up 2.9% compared with the same period a year ago.
And this time, gas stations can’t be blamed for the dip in sales. In fact, excluding gas station sales, retail sales still fell by 0.8% month over month, while sales of building materials and gardening equipment also contracted by 2.3%. So what is behind this weakness?
One explanation is that many Americans were dealing with the excessive snowfall that blanketed the eastern U.S. and were not in the mood to head out to auto dealerships or to patronize their local malls or restaurants. All of these categories are usually influenced by weather, so it seems that the brutal conditions definitely take some of the blame for the weaker-than-expected retail sales.
That said, grocery stores and online retailers weathered the storm rather nicely. Gas station sales also improved as prices at the pump began to creep up–a reversal of the declining trend we saw the previous month.
A measure we like to keep an eye on is core retail sales (excludes autos, gasoline and building material sales)–the “control” that guides the real consumption component of GDP–which were flat in February after declining by 0.1% (was up 0.1%) in January and climbing 0.2% in December. To be sure, the recent growth numbers have been weaker than the gains we saw during the preceding 12 months when there was a string of monthly gains between 0.3% and 1.1%.
For a better sense of the reduced volatility of the control series, Chart 1–which is a year-over-year overlay with headline retail sales–also shows a decline in February. That said, one month doesn’t make a trend.