CPI RISES 2.8 PERCENT IN PAST YEAR

REAL EARNINGS DECLINE AGAIN

CONSUMER CONFIDENCE DROPS

BUSINESS SALES AND INVENTORIES RISE

RETAIL SALES SELECTIVELY IMPROVE

The Labor Department reported today that in March the Consumer Price Index (CPI) rose by 0.4 percent. This followed a February rise of 0.2 percent. After the volatile food and energy components were subtracted, the "core" CPI change was + 0.3 percent. For the year ending March, the CPI rose 2.8 percent, a little higher than the 2.5 percent rise in 1995.

Another Labor Department news release provided a second viewpoint on the growth of prices. It was reported today that, during March, the average weekly earnings of US nonfarm wage earners, adjusted for inflation, fell by 0.5 percent. This was the fourth drop in real earnings in the past five months. For the year ending in March, real earnings dropped 0.2 percent.

The preliminary April value for the University of Michigan's consumer sentiment index became available today. From March to April this index declined from 93.7 to 90.8. More importantly, today's data revealed that the U of M consumer expectations index also fell, dropping from 86.2 to 80.9 month-over-month. The expectations index is one of the 11 indicators comprising the Commerce Department's Composite Index of Leading Economic Indicators (LEI).

Today the Commerce Department released its report on Manufacturing and Trade Inventories and Sales for February. The Sales indicator is one of the four components of Commerce's Composite Index of Coincident Economic Indicators (CEI). During February, sales rose by 1.1 percent. This followed a downwardly-revised fall of 0.9 percent in January. For the year ending in February, sales rose by 3.9 percent.

Inventories rose just 0.1 percent in February, following a rise of 0.6 percent in January. Year over year, inventories rose by 5.1 percent.

In another report today, Commerce announced that retail sales eked out a 0.1 percent gain in March. This compares with a 1.9 percent jump in February. Slower sales of cars, clothing and hardware contributed to the March slowdown. But, still another report today, by Salomon Brothers, showed that March same-store sales by the nations's largest retail chains rose by 5.4 percent in March. Approximately 2.0 percent of this jump was attributed to pre-Easter sales.

Summing up: Since the first of the year the CPI has risen at a 4.0 percent annual rate. But, from a longer-term, year-over-year perspective, the CPI is only up a modest 2.8 percent. Wage inflation is non-existant. Real earnings declined in 4 of the last 5 months and in the last year. The April drop in the U of M consumer expectations index will have a significant negative impact on the next calculation of the LEI. Conversely, the pick up in Manufacturing and Trade Sales during February should make a significant positive contribution to the CEI. Finally, although retail sales throughout the economy slowed during March, same-store sales by large chains were up by 5.4 percent. Altogether, we seem to have a picture of controlled inflation and increased consumer caution, coupled with rising February sales by businesses and a selective pickup in consumer spending in March. Bond and stock market traders must have liked what they saw today. Both markets closed substantially to the upside.

Byline: Lafferty (MF Merlin)