Merk Investments: Retail Sales

The advance retail sales report for the month of April saw the core surprise to the upside, advancing 0.5% and the headline decline -0.2%. A sharp decline of -2.8% in the auto sector dragged down overall sales. But the major narrative inside the data was the surprising increase inside the core. Electronics and appliances rose 1.4%, building materials 1.9% and general merchandise stores 0.5%. On the negative side of the ledger sales at gasoline stations fell -0.4%, miscellaneous store retailers -1.2% and non-store retailers were flat.

The holiday inspired increase in purchases saw the key core data that feeds into the overall output for Q2’08 get off to an unexpectedly positive start. However, the extra shopping day for the month cannot account for the entire increase across the board inside the core. In advance of the arrival of the rebate checks, the consumer hit the malls to release of bit of the pent up demand for purchasing after a few months of lackluster sales. This is an undeniably positive development that does set the table for a second quarter that is looking to shape up far better than anyone could have imagined just a few weeks ago.

Import Prices

In contrast, with the positive surprise inside the advance retail sales data, we observed another month of nasty increases in import prices. The cost of imports increased 1.8% m/m and 15.4% y/y, driven by a 4.4% m/m and 57.2% y/y increase in the cost of petroleum. Outside of the petroleum sector, the major driver of the increase in import costs was the 3.3% rise in non-petroleum industrial supplies and materials. Over the last twelve months the cost of industrial supplies has increased 17.0%.

On an annualized basis, import prices are up a stunning 23.9%. This fact, will over time bleed into the general economy and provide a much longer term pressure on core pricing than is generally acknowledged.  On a real basis, the purchasing power of consumers continues to be eroded and the price of imports will continue soar on the back of the generalized global increase in inflation.

Joseph Brusuelas
Merk Investments
Chief Economist/VP Global Strategy

This report was prepared by Merk Investments LLC, and reflects the current opinion of the author.  It is based upon sources and data believed to be accurate and reliable.  Opinions and forward looking statements expressed are subject to change without notice.  This information does not constitute a solicitation or an offer to buy or sell any investment product, nor provide investment advice. Merk Investments does not own any of the stocks mentioned; this is not an offer to buy or sell any security mentioned.