Eyes on the Economy: Retail Sales, Industrial Production, Manufacturing

Retail Sales Stutter

On a yearly basis, retail sales decelerated to 1.6% in April after posting an annual growth of 2.4% the previous month. On a month-over-month basis, retail sales rebounded from a decline of 0.7% to post a gain of 0.4%, still well below the forecast figure of 0.8%. With recent declines and worries over consumption, markets still cheered even for the below-forecast growth in April. Unfortunately, the U.S. Census Bureau also noted that the estimated 0.4% improvement is not statistically significant—meaning that the actual value may be zero.

The gain, if there was one, was driven by increases in sales at motor vehicle dealers, building material and supply dealers, food services, health and personal care, merchandise stores, nonstore retailers and miscellaneous store retailers. On the other hand, there were declines for gas stations, clothing, electronics, furniture, and sporting and hobby goods. 

Industrial Production Unexpectedly Increases

Industrial production increased 0.5% in April on a month-over-month basis and 0.2% on a yearly basis, beating consensus expectations. Note that the gains for the previous two months, February and March, were revised down to 0%. Thus, always take caution in reading initial reporting of an economic indicator. 

The growth in April was largely driven by gains in manufacturing—particularly the output of motor vehicles and parts. As supply chain pressure eases, we’ve seen improvement in output of products that were severely impacted by broken supply chains such as vehicles. It must be noted that, despite the gains, the manufacturing index was still 0.9% below its year-ago level. However, general capacity utilization—the rate at which potential output levels are met or used—was back to its long-run average.

New York State Manufacturing Index Declines

The Empire State Manufacturing Index unexpectedly declined to minus 31.8 in May, far below forecasts of minus 3.75. The index tracks the sentiment of New York manufacturing executives regarding business conditions. A reading below zero indicates a contraction in activity, while a positive reading points to expansion. 

Business activity dropped sharply, with new orders and shipments plunging while employment and hours worked continued to edge down. At the same time, prices continued to increase while capital spending plans turned sluggish. Overall, the index has run negative in all but three of the past 12 months. And New York is hardly alone. Manufacturing indices for other states and regions have also been mostly negative for months.

Typically, sustained declines in manufacturing business conditions are associated with a recession. However, various measures of manufacturing activity have been weak but volatile in the past year instead of weak and consistently declining. The volatility reflects the uncertainty in macroeconomic conditions, much of which is the result of COVID aftermaths and the bumpy road to recovery that has been met with the possibility of another recession. 

State and Regional Manufacturing Business Conditions

_{Source: Trading Economics.}