Cheaper Gas Prices Boost Sales at the Pump

October 21, 2008--Industrial production took a hit last month. Inflation appears to be in check, as the Consumer Price Index remained flat in September, while the Producer Price Index fell on the heels of cheaper energy. Last, new residential construction fell again last month.

 

Retail Sales
In September, total retail sales plunged 1.2% following an upwardly revised decline of 0.4% in August (originally reported as a decline of 0.5%). Slow sales at auto dealers (-4.2%), furniture stores (-2.3%), and clothing stores (-2.3%) were the largest drags on growth, though every sector of the retail market posted declines, with the exception of gas station sales (+0.1%). Core sales, which exclude sales made at gasoline stations and auto dealerships, posted a 0.7% decrease. On a year-to-year basis, top-line retail sales decreased 1%, while core sales are up 1.6% for the year. The trend of weak or negative growth should remain in the near term as beleaguered consumers, having spent their stimulus checks, face a confluence of the financial meltdown, a weak labor market, and the housing crisis.

 

Industrial Production
Industrial production decreased 2.8% in September, down further from August's 1% decline. A 7.8% plunge in mining activity led the decline. Manufacturing was also off, falling 2.6%. Utility output actually grew in September, at a rate of 2.2%. Capacity utilization declined to 76.4%. With continued weakness in financial markets, residential investment, auto production, and in the broader economy, expect industrial production to remain weak this quarter.

 

Consumer Price Index
The Consumer Price Index (CPI) remained steady in September, after falling 0.1% in August. The flat CPI number comes from a combination of falling energy prices (down 1.9%) and weak consumer demand. Food inflation continued its long rise as prices rose 0.6% for the second straight month. The core CPI, which excludes food and energy prices, inched up 0.1%. On a year-ago basis, the top-line CPI increased 4.9% while the core CPI is up 2.5%. Inflation appears in check as consumers, businesses, and government have pulled back because of the financial crisis. The recent FOMC action to cut rates seems to confirm this notion. 

 

Producer Price Index
Producer prices for finished goods decreased 0.4% in September, after falling 0.9% in August. The decline came as energy prices fell 2.9% for the month. Also, prices decreased in the early and intermediate stages of production, falling 9.4% and 0.3%, respectively. Furthermore, core prices, which exclude food and energy prices, remained above trend, increasing 0.4% for the month.

 

New Residential Construction
Housing starts were off 6.3% in September to 817,000 units, following a decrease of 8.1% in August. Permits for new housing also fell, down 8.3% during September. Compared to September of 2007, housing starts are down 31.1%. Despite low mortgage rates, little demand for housing remains because of continuing problems in financial markets, declines in household wealth, and a soft labor market.