Retails Sales Disappoint

Retail sales rose 0.2% in November, below the consensus of 0.5%. Vehicle and gas station sales accounted for most it, up 0.5% and 0.7%, respectively. Excluding these two categories, retail sales were flat.

Part of the disappointing performance was likely due to seasonality. The late Thanksgiving holiday this year left six fewer days in the holiday shopping season than last year. Several retail categories posted notable declines, including apparel, sporting good and hobby stores, and health and personal care stores. Restaurant sales fell for the second straight month and by the most in a year. Those were offset mostly by gains in electronics and online shopping. Measures of discretionary retail sales and its core picked up 0.2% and 0.3%, respectively, both below their historical means.

On a y/y trend basis, retail sales were up 3.5%, which is better than the pace early this year, but worse than the average in 2018. Discretionary retail sales y/y growth and its core have also improved over the course of this year, and show consumer resilience and underlying strength, despite heightened economic policy uncertainty overall.

CEO confidence continues to slump
The CEO Economic Outlook Index from the Business Roundtable fell another 2.5 points in Q4 to 76.7, its lowest level in three years. It was the seventh straight decline in CEO confidence, weighed down by trade policy uncertainty, the global growth slowdown, and the contraction in U.S. manufacturing. It’s worth noting that the survey was taken well ahead of the Congressional approval of USMCA and today’s announcement of an imminent phase-one U.S.-China trade deal. Both have the potential to lift business confidence.

CEOs project a modest uptick in sales growth ahead, but both capex and hiring are expected to continue to moderate. CEOs project 2.1% real GDP growth in 2020.

Business inventories up
Business inventories rose 0.2% in October, its first increase in three months, and matching the consensus. But business sales ticked down 0.1%. As a result, the inventory-to-sales ratio edged up slightly to 1.40, its highest level since November 2016. The increase was most pronounced at the wholesale level, where inventories are highly correlated with imports and trade tensions have led to inventory accumulation ahead of anticipated tariffs.

Import prices rise slightly on fuel
Import prices rebounded 0.2% in November, matching its biggest gain since March, and in line with the consensus. Fuel prices rose 2.6%, the most in six months, but nonfuel prices slipped 0.1%. The decline was concentrated in capital goods and food prices, each falling 0.3%.
On a y/y basis, import prices were off 1.3%, falling for the eighth straight month, but the deflationary momentum diminished somewhat, as fuel prices rose. It also reflected a slower pace of appreciation of the U.S. dollar.

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