No Spending = No Sales

So what else is new? The surprise isn't that the reading came in bad, but it actually was much lower than expected... THAT was the shock! The worse is obviously has yet to come as we will see more and more dreadfulness in the world's largest economy.

Starting off with the Retail Sales, the Commerce department released their report showing that retail sales fell 0.6% in the month of February compared to the 0.3% rise in January. Retail sales excluding automobiles sank 0.2% in February where the previous month recorded a rise of 0.3% as well.

Retail sales makes up about one-third of the gross domestic product and at this point, it seems that growth slowed down dramatically. But again this isn't much of a surprise since Mr. Donald Kohn previously testified that growth might be as much as zero this quarter. With words like that, confidence was definitely shaken and spending in the economy has slacked due to many reasons such as inclining food and energy prices and weaker income growth.

Further analyzing the components of the retail sales; the sales of durable goods were particularly weak in February while the sales of nondurable goods held up despite the drop in gasoline sales. Automobile sales plunged 1.9% marking the biggest drop since June but were down 4.2% compared with a year earlier.

Another report by the Labor Department concerning Import prices indicated that process of goods imported into the U.S. inclined at a slower pace of 0.2% in February. On an annual basis, import prices also rose 13.6%.

Prices for goods were on the rise as the dollar fell to new record lows against the Yen and the Euro as fears concerning the U.S. entering a state of recession and a possible stagflation piled up.

Imported petroleum prices dropped 1.5% where ironically, these same prices are up 60.9% over the year. Prices for imported natural gas soared 8.7% in February while non-petroleum prices inclined 0.6%. Imported capital goods climbed slightly by 0.1% in February.

On the exports side, the U.S. export prices climbed by 0.9% in February led by the jump in agricultural exports by 4.4%. Over the past year, the have increased 30.8%.

The only cheerful piece of information out today which is not quite that significant was the U.S. weekly initial jobless claims where it showed that the amount of people filing for first time aids in the week ending March 8 was the same at 353,000 from the previous revised reading. The four week average fell last week to 358,500 and continuing claims for benefits remained at its highest level since September 2005.

As for the inventories, U.S. businesses were able to get rid of their inventories in January as sales were faster than their stocks piled up. In relation to sales, inventory levels were at a record low at 1.25 times the monthly sales on a boost from high prices and gains made by wholesalers. Inventories rose 0.8% in January marking the largest rise since mid 2006.

Everyone is favoring a strong dollar... well why would you favor anything else??! A strong dollar is what is needed for the U.S. to ease inflationary pressures and hence bring down energy prices. So unless there's any other way to do that, don't pray for anything but a strong dollar!

But waiting for the dollar to strengthen might take some time especially that the effects of a 50-75 basis point cut next week has been locked into the markets ... dear reader, it's still going to be a while!

Crown Forex

Posted in: Economy,Finance and Investment,Forex