– May 15, 2019

Retail sales and food-services spending fell 0.2 percent in April following a 1.7 percent gain in March. Excluding the volatile auto and energy categories, core retail sales and food services were down 0.2 percent in April after a gain of 1.1 percent in March. Over the past year, total retail sales and food services were up 3.1 percent through April, while core retail sales and food services have increased 3.2 percent (see top chart).

Weakness in April was widespread, with declines in six retail-spending categories, but five categories posted gains and two were essentially unchanged. Declines were led by a 1.9 percent drop for building-material, garden-equipment, and garden-supplies dealers, a 1.3 percent decline for electronics and appliance stores, and a 1.1 percent retreat for motor vehicle and motor vehicle–parts dealers. The drop in motor vehicles was not surprising given the slower pace of unit sales, coming in at a 16.4 million-unit annual pace versus a 17.4 million rate in March.

On the positive side, gas station sales were up 1.8 percent, though volatility in gasoline spending tends to reflect changes in prices rather than changes in volume. Posting gains of 0.2 percent for the month were grocery stores; sporting-goods, hobby, musical-instrument, and book stores; general-merchandise stores; and restaurants.

Industrial production fell 0.5 percent in April, following a 0.2 percent gain in March. The April fall is the third drop in four months. Over the past year, industrial production is up just 0.9 percent. Total capacity utilization decreased 0.6 percentage points to 77.9 percent as capacity posted a 0.2 percent gain for the month.

Manufacturing output, which accounts for about 75 percent of total industrial production, fell 0.5 percent after being unchanged in March. Manufacturing output has been flat or down for four consecutive months, resulting in a 0.2 percent drop over the past year (see bottom chart).

Mining output posted a 1.6 percent gain for the month while utilities output dropped 3.5 percent in April. Over the past year, mining output is up 10.4 percent while utilities output is down 4.7 percent.

Manufacturing-sector weakness was led by a sharp fall in production of motor vehicles and machinery. Total motor vehicle and motor vehicle–parts production was down 2.6 percent for the month as vehicle assemblies fell to 10.58 million at a seasonally adjusted annual rate from 11.01 million in March. All segments of vehicles showed declines for the month with automobile assemblies falling to 2.42 million, light trucks falling to 7.82 million, and medium and heavy trucks dropping to 0.34 million. Machinery production also fell 2.6 percent after posting a 0.4 percent rise in the prior month. Over the past year, motor vehicle production is off 4.4 percent while machinery production is down 0.7 percent.

The drops in motor vehicle and machinery production dragged total durable-goods production down 0.9 percent while nondurable-goods production was off 0.1 percent for the month. Among nondurable-goods producers, chemicals (12.7 percent of total industrial production and 35.7 percent of nondurable goods) rose 0.1 percent while food-products production (11.3 percent of total output and 31.8 percent of nondurables) declined 0.2 percent. These two categories account for two-thirds of nondurable-goods output.

Measured by market segment, consumer-goods production was down 1.2 percent in April, with consumer durables off 0.8 percent and consumer nondurables down 1.3 percent. Business-equipment production fell 2.1 percent in April while construction supplies decreased 0.7 percent for the month.

Materials production (about 46 percent of output) increased 0.2 percent for the month and is up 3.2 percent from a year ago. The energy component has been a major source of volatility in this category, particularly following the collapse of energy prices in mid-2014. The non-energy component rose 0.7 percent for the month and is up 7.5 percent from a year ago.

Manufacturing-capacity utilization dropped to 75.7 percent in April, down 0.5 percentage points from 76.2 percent in March.

The weak data for April continue the multi-month run of mixed results for the economy. While some of the weakness in the early part of the year was likely attributable to the government shutdown, the persistence of mixed results over the last month or two is disconcerting. The strong labor market, rising incomes, and relatively favorable consumer sentiment suggest continued economic expansion is the most likely path, but caution is warranted.

Robert Hughes

Robert Hughes joined AIER in 2013 following more than 25 years in economic and financial markets research on Wall Street. Bob was formerly the head of Global Equity Strategy for Brown Brothers Harriman, where he developed equity investment strategy combining top-down macro analysis with bottom-up fundamentals. Prior to BBH, Bob was a Senior Equity Strategist for State Street Global Markets, Senior Economic Strategist with Prudential Equity Group and Senior Economist and Financial Markets Analyst for Citicorp Investment Services. Bob has a MA in economics from Fordham University and a BS in business from Lehigh University.
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