Daily Forecast Update: Retail Sales, Producer Price Index

November 17, 2009

By Lawrence Yun, Chief Economist

Good news: consumers are willing to spend. Retail sales rose in October, led partly by autos even after the cash-for-clunker program. The economy is boosted upward for this quarter.
Good news on prices. According to the producer price index, there is virtually no inflationary pressure. This will permit the Federal Reserve to keep interest rate low for a longer period. Nonetheless, be mindful that the rock-bottom mortgage rates will not be forever and there is only one direction in which rates will move in future.

Retail sales rose a healthy 1.4 percent in October. Sales of motor vehicles and parts advanced better than 7 percent. Excluding autos, retail sales still rose 0.2 percent.
Compared to one year ago, sales are still down by 2.6 percent. But the decline is less severe than before. For most of the past 12 months, sales were down by 5 to 7 percent on a year-over-year basis.
Auto sales had collapsed by 15 percent in the first month after the cash-for-clunker program, but the auto sales quickly made up most of the losses the following month. The degree of recovery in the auto sector will depend upon the broader economic recovery, which in turn depends on recovery in the housing wealth. Tax credit stimulus for home buying should steadily reduce inventory and soon start to nudge home values upward.

Producer prices comprise tangible goods before reaching the consumers. This price measure rose 0.3.
Excluding the volatile food and energy components, the core PPI fell 0.6 percent, implying no inflationary pressure.
From one year ago, PPI is down 1.7 percent and the core PPI is up by only 0.7 percent. There is no inflationary pressure right now.
Consumer price index is more important than producer price index for the general public. PPI would suggest how CPI may move in the future. But one big difference between the two, aside from the mark-up cost, is that CPI covers many service items - like haircuts, airfare, and doctor visits - which PPI does not capture.

This is one in a series of commentaries by the Research staff of the National Association of REALTORS®. Read more commentaries >

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