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By HaleStewart January 14, 2018 7:34 am
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US Economic Week in Review: Strong Retail Sales and Modest Inflationary Pressures

            This week was light on the U.S. economic news front; there were only two releases of import: retail sales and CPI.

            Retail sales were strong: they increased .4% M/M and 5.4% Y/Y.  Ex-auto, the numbers were .4% and 6.3% respectively.  Here’s the data in graph form:

Total sales (upper left) have been consistently increasing for the last five years.  Notice the larger than usual bumps in the preceding two months.  The Y/Y pace (upper right) is near 5-year highs.  The numbers ex-auto are similar: they’ve increased consistently (lower left) and are at 5-year highs on a Y/Y basis (lower right).

            Looking at the data in moving average, we get the following graph:

The 6, 9, and 12-month moving averages of the absolute M/M change are increasing.  The 6-month number is at an 8 year high while the 9-month average is at its highest level since 2Q11.

            The best news from the report was the following charts that show strong demand for housing-related items:

The top two charts show that building supply is at a 5-year high on a Y/Y basis, as are electronics and appliances (middle).  This category had a large Y/Y jump over the last few months.  Finally, furnishings (bottom) are near a 5-year Y/Y high. 

            The BLS reported that overall inflation was 2.1% while core was 1.8%.  Very little has recently changed for this data:

Total CPI (left) has been above 2% for most of 2017 while core (right) has been below 2%, hovering around 1.8% for most of 2017. 

            Everyone focuses on food and energy prices as the primary, highly variable CPI components.  But while food prices are 13.6% of CPI and energy prices are 7.46%, all other commodities less food and energy account for 18.64% of CPI – which is larger than each separately and nearly as large as the combined two.  Here are the charts of each on a Y/Y basis:

Food prices (upper left) are increasing modestly, but are still below 2%.  Energy prices (upper right) are increasing at strong rates, but there only account for 7 1/2 % of CPI.  But all other commodity prices (lower chart) are subtracting from CPI.  While commodity prices inputs into CPI are still positive, they are far less so thanks to this latter component. 

            Finally, we have the remaining 60% of prices:

These are increasing slightly over 2.5% on a Y/Y basis. 

            The key here is the weak input coming from commodity prices.  With the exception of energy, commodity prices are tame, which is keeping the cost of everything else low.    

In 2009, F. Hale Stewart, JD. LL.M. graduated magna cum laude from Thomas Jefferson School of Law’s LLM Program.  He is the author of three books: U.S. Captive Insurance LawCaptive Insurance in Plain English and The Lifetime Income Security Solution.  He also provides commentary to the Tax Analysts News Service, as well as economic analysis to TLRAnalytics and the Bonddad Blog.  He is also an investment adviser with Thompson Creek Wealth Advisors.    

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