CONSUMER PRICES HOLD STEADYREAL EARNINGS CONTINUE TO DECLINE
SLOW CAR SALES DRAG DOWN RETAIL SECTOR
CHAIN STORE SALES EDGE AHEAD
The Labor Department's Bureau of Labor Statistics reported today that, during April, its Consumer Price Index (CPI) for Urban Consumers had risen by a seasonally-adjusted 0.4 percent.
The CPI is an index of the prices we would pay if we bought a "market basket of goods and services" that the Labor Department has determined to be typical purchases for urban consumers. CPI changes provide an indication of inflation at the retail level. Bond market participants pay close attention to changes in the CPI because rising inflation leads to higher interest rates and lower bond prices. Stock market participants keep track of changes in bond yields because, in the past, stocks have generally performed well during periods of falling interest rates.
Excluding the volatile food and energy sectors, the CPI rose by only 0.1 percent in April.
For the 12-month period ending in April, the CPI grew 2.9 percent. This compares with a rate of 2.5 percent in 1995 and a rate of 2.7 percent in both 1994 and 1993.
The next best thing to no inflation is a low and predictable rate of inflation. And, that is precisely the situation that prevails. April was the 64th consecutive month of low, essentially constant, CPI growth. The last period comparable to this was way back in the early 1960's.
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Another Labor Department news release today provided another viewpoint on the growth of prices. The Bureau of Labor Statistics reported this morning that real average weekly earnings of nonfarm workers fell by 0.4 percent during April. This followed a revised drop of 0.3 percent in March, and was the fifth drop in real earnings in the past six months.
Data on average weekly earnings are collected from the payroll reports of private nonfarm establishments. Earnings of both full-time and part-time workers holding production or nonsupervisory jobs are included. Real average weekly earnings are calculated by adjusting earnings in current dollars for changes in the CPI.
In April, hourly earnings rose by 0.6 percent. But, hours worked fell by 0.6 percent and, as noted above, the CPI rose 0.4 percent. Taking this all together we have a net drop of 0.4 percent in real earnings.
For the year ending in April, hourly earnings rose by 3.1 percent, hours worked dropped 0.3 percent and the CPI grew by 2.9 percent. So, the net change for the year was a decrease in real earnings of 0.1 percent.
The run-ups in bond yields in the past couple months (and the accompanying sell-offs in stocks) have been attributed in part to fears of resurgence in wage inflation. The real-earnings data are telling us that this just ain't so. Wages are not even keeping pace with the modest growth in the Consumer Price Index.
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The Commerce Department's Bureau of the Census announced today that advance estimates of U.S. retail sales for April showed a decline of 0.3 percent (+/-1.3%) from March. The drop off was mainly attributed to slower sales of new cars. Excluding auto sales, the indicator would have been up 0.4 percent for the month.
Notice the large band of uncertainty associated with the monthly reading (+/-1.3%). This is because the advance estimates are based on a small subsample of the Bureau's full retail sales sample. Estimates from the advance and the subsequent full survey can differ because of the earlier reporting in the advance survey and because of sampling variability present in both surveys. The February-to-March sales change is a good example of this. Last month, in the advance report, the monthly change was reported to be +0.1 percent (+/-1.3%). But, this month, that figure was revised to +0.5 percent (+/-0.5%).
The solution to this problem is to look at the data over a longer time frame. For instance, the April 1996 retail sales number is up 6.0 percent (+/-2.0%) from April of 1995. Similarly, total sales for the February-April period this year were 6.2 percent (+/-1.8%) higher than the same period last year. Even for the year-over-year data, the percentage uncertainties are high; but, at least we can tell that the yearly changes were positive and that they were at least equal, respectively, to 4.0 and 4.4 percent.
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Elsewhere on the retail front, Mitsubishi Bank/Schroder-Wertheim reported today that retail sales at the stores they survey rose by 1.9 percent during the week ending May 11. This partially offsets a decline of 2.1 percent during the week ending May 4. During the past eleven weeks, week-to-week sales advanced six times, declined four times and were unchanged once. So, over the short run, on balance, it looks like chain-store sales are on the rise.
Once again the markets reacted favorably to the day's economic reports. Bonds and Stocks rose this morning as soon as the news was out, and were still holding on to substantial gains at mid afternoon.
Byline: Lafferty (MF Merlin)