March's Retail Trade data showed headline sales increased 0.8% in February, better than economists foresaw (+0.3%), as activity jumped 6.5% against the prior year period. The regular adjustment made to the headline is to weed out important auto sales. When we do that, we find March sales still increased 0.8%, again better than the economists' consensus (+0.6%). At times, gasoline prices play an important role in the sales of retailers in aggregate, and certainly for gas sellers like The Pantry (NASDAQ: PTRY). Over the last six months, gasoline has been an issue worth noting. In March, when weeding out sales of gasoline and autos, sales still rose by a robust 0.7%. Sales at gasoline stations were 1.1% higher in March and were up 7.6% against the prior year.
But beware, because some price change is still missed, given the feed flow of petroleum and other commodity prices into goods and services generally. Back in 2007, I was warning that the then considered negligible long-term impact of changes in food and energy would become important through the next couple decades as those changes increasingly reflected evolving secular supply demand dynamics. That's because as prices anchor higher for increasingly tighter commodities markets, they will find their way into all goods, and the core price increase will rise along with the headline… inflation thus cometh in my view. Given the nascent trend of the world's central banks to flood fiat currency, we may see what I called back then, an "economic fishtail," leaving us flailing at the wheel to regain control of the economy.
My warnings about price change might be playing out as early as now within the auto industry. While sales were higher in March according to the Retail Sales report, unit sales were reported lower for the same month, on an annualized basis. Domestic vehicle unit sales marked an annual pace of 10.9 million for March, which was down from the 11.4 million pace reported for February. Much depends on the basis used to annualize the sales pace, meaning how many trailing months are employed or whether it is simply annualized on the last month's data, which could have unique influences playing upon it. Nevertheless, the data tells a story of economic value maximization and a new patience in the auto industry.
Regarding inflation, the latest CPI data for March showed a 0.3% monthly price increase and a 0.2% price increase when excluding food and energy. Producer prices were reported flat on the headline, but 0.3% higher at the core for March. The last reported Personal Consumption Expenditures (PCE) Price Index (for February) showed a 0.3% price increase in aggregate and a 0.1% increase when excluding food and energy. Certainly, the economic concern about Europe and the global economy have quelled price increase until now. This is the reason, after all, that world's major central banks remain in expansionary mode. However, creeping gasoline prices have still contaminated the environment, and because of Iran, they threaten to do worse.
Building Materials & Garden Equipment & Supplies Dealers reported a 3.0% sales increase in March, and have noted a 14.1% increase over the prior year. Home Depot (NYSE: HD) and Lowe's (NYSE: LOW) marked better than 1% gains Monday as a result. This segment is significantly less important than autos these days, but is not inconsequential. The year-to-year increase likely reflects the improved economy, and within housing, the growth of multi-family projects for our developing renter nation. I wonder, though, how much spring tornado activity in the nation's center and seasonal hurricane activity along the Southeast Coast influence this data, as they drive significant construction across vast regions of the country. Due to the earlier spring this year, based on temperatures, it seems the seasonal surge of tornadoes perhaps is making a difference for March. Certainly there are many varied factors at play for the builder supply segment and each segment within the complex retail trade.
Furniture and Home Furnishing Stores noted a 1.1% sales increase in March, which is pretty strong too. But, when insurance companies are paying, what would hold people back from restocking their homes post calamity? Let's face it, though, while the broad housing industry continues to reel, market share eating, large publicly traded contractors like PulteGroup (NYSE: PHM) and Toll Brothers (NYSE: TOL) are reportedly seeing good growth. That growth may be somewhat aided by pent-up demand, with fears of home price decrease fading. That said, I continue to warn investors that a nascent economic stumble should penalize the shares of market sensitive builders nevertheless.
It's hard to argue with the Clothing and Accessories growth of 0.9%, the Electronics & Appliance Store growth of 1.0%, or the General Merchandise Stores gain of 0.7% in March, except to say that the earlier spring likely supported the month's production. Retail industry analysts will note the importance of reading March and April together for this reason. Certainly, recent reports from the likes of Best Buy (NYSE: BBY) put the economic health of consumer spending in question. However, much of the sales lost by Best Buy are gained by Amazon.com (NASDAQ: AMZN), eBay (NASDAQ: EBAY) and other "nonstore" retailers (+0.7%).
Generally speaking, and based on the factors discussed here, I would have to call this latest Retail Trade data neutral in aggregate. That said, I remain cautious about the consumer segment, given my concern for the economy tied to starving Europe and stumbling China, not to mention the economically handicapped U.S., with our still too high unemployment. Finally, I remind short-sighted investors that a disruptive Iran event is lying in waiting, and should surprise nobody upon its activation. Though it will surprise most greedy hands that keep dirty seeking short-term gains.