What I Saw Last Week

Inflation in April, as measured by the Consumer Price Index, was pretty much in line with expectations with the all-items index up by 0.2% (I had forecast 0.2%) and the core rate also matching my forecast with an increase of 0.1%.


On a year-over-year basis, the all items index was up 2.2%, versus 2.4% for the 12- months ending in March and the 1.7% average annual increase seen over the last 10-years.

The core index, which excludes food and energy, was up 1.9% year-over-year, versus 2.0% for the 12-months ended March and the average annual increase of 1.8% over the past decade.

The key takeaway from the CPI report is that consumer inflation pressures moderated a bit in April. That won’t change the thinking that the Fed will raise rates at its June meeting, yet it will temper concerns about the Fed possibly needing to be more aggressive with its rate hikes.

U.S. Retail Sales rose by 0.4% in April – I had called for a 0.6% increase – while core sales rose by 0.3% (below my forecast for an increase of 0.5%).

Retail Sales

The overall growth in retail sales was aided by a 0.7% increase in auto sales, as well as a nice jump in sales at electronics and appliance stores (+1.3%), building material and garden equipment and supplies dealers (+1.2%), and non-store retailers (+1.4%).

The takeaway from this report is that it puts consumer spending on a path toward being a much better contributor to second quarter real GDP growth than it was in the first quarter.

Consumer Sentiment in early May came in at 97.9 – this was well above my call for a pullback to 96.5.  The Current Economic Conditions Index was 112.7, unchanged from the final reading for April, while the Index of Consumer Expectations rose to 88.1 from 87.0


Interestingly, there hasn’t been a letup in consumer confidence since the election. The May number was nearly the same as the December to May average of 97.4.

The takeaway from this report is that consumers had some of the most favorable real income expectations in a dozen years, yet their buying plans were reportedly mixed. That disconnect seems to fit with the divide that has been seen between “soft” data, like this survey, and “hard” data like the personal spending report.

What to Watch for This Week

U.S. Housing Starts were running at an annual rate of 1.215M units in March and I anticipate that the April number will show an uptick.  My call is for annual starts to rise to 1.255M units.

U.S. Building Permits rose 3.6% to an annual rate of 1.260M units in March.  The April figure is likely to show further improvement with permits rising to an annual rate of 1.270M units.