5 Reports Show Impacts of Oil Prices, Evidence of Deflation

Almost every day a major government agency or private organization releases new information covering the status of some pocket of the economy. I’m here to help you sift through the barrage of economic data out there and determine what this will mean for your stocks.

stocks to buyLet’s take a look at what the following reports have to say and what their results mean for the U.S. economy:

Wholesale Inventories

What It Measures: The Commerce Department releases its wholesale trade report every month, which includes sales and inventory statistics from the second stage of the manufacturing process. Although the sales figures don’t say much about personal consumption, wholesale inventories sometimes swing enough to affect the Gross Domestic Product outlook.

The Breakdown: In January, wholesale inventories improved 0.3%, outpacing economists’ expectations of a 0.3% decline. Excluding automobile stockpiles, core wholesale inventories rose 0.2%. Driving the increase were electrical goods, motor vehicles and motor vehicle parts stockpiles. At the same time, sales at wholesalers plunged 3.1%, representing the largest drop in nearly six years. So it now would take 1.27 months for wholesalers to go through their entire inventory, up from 1.22 months in December.

The Bottom Line: This was an interesting report. While wholesalers stockpiled more than expected, plunging oil prices weighed on wholesale sales. This means that wholesale inventories will likely cool for the rest of Q1. However, in general, the second quarter is expected to be a stronger one for consumer spending, so I’m looking forward to the rebound.

Initial Claims for Unemployment

What It Measures: It is an indicator of the direction of the job market. Increases in jobless claims show slowing job growth; decreases in claims signal accelerating job growth. On a week-to-week basis, jobless claims are volatile, so one of the best ways to track this measure is to look at the four-week moving average. It usually takes a jump or decline of at least 30K claims to signal a meaningful change in job growth.

The Breakdown: For the week ending Mar. 7, initial claims for unemployment fell to a 289,000 annual rate, 36,000 below the prior week’s 325,000 annual rate. This was a stronger number than expected; economists had expected jobless claims to decline slightly to 315,000. Meanwhile, the four-week moving average fell 3,750 to 302,250.

The Bottom Line: Given last week’s strong payroll report, it’s not surprising to see that layoff activity continues to moderate downward.

Retail Sales

What It Measures: Through this report, the Commerce Department announces total receipts of retail stores for the past month. Retail sales do not include spending on services, which makes up over half of total consumption. The report also covers retail sales ex-autos, removing the most volatile consumer purchases. The changes in retail sales are followed closely and are a good indicator of broad consumer spending patterns.

The Breakdown: In February, retail sales pulled back 0.6% from January. This was worse than expected; economists had expected retail sales to be flat. For the first time since 2012, we’ve seen retail sales fall for three months in a row. Excluding auto sales, retail sales were flat in February. Excluding gas and auto sales, retail sales declined 0.2%.

The Bottom Line: In the past 12 months, retail sales have risen only 1.7%; this is due to the dramatic decline of oil prices in the past few months. Deflationary pressures are weighing on retail sales, but as oil prices increase during the spring and summer months, and the weather improves, I expect retail sales to rebound.

Business Inventories

What It Measures: The Commerce Department’s business inventories report includes sales and inventory statistics from all three stages of the manufacturing process (manufacturing, wholesale and retail). The retail inventory number is an important part of this report as it can move the market. The report also can affect the Gross Domestic Product outlook.

The Breakdown: In January, business inventories were flat, which exceeded economists’ expectations of a 0.2% decline. Retail inventories, which exclude automobiles, rose 0.1%. At the same time, business sales fell 2% in January. And at the current sales pace, it will take 1.35 months for businesses to empty their shelves, the highest inventory-to-sales ratio in five and a half years.

The Bottom Line: The business inventories report reaffirmed the results from the earlier wholesale inventories report. While businesses are rebuilding their inventories, we’ll likely see this trend reverse in the next few months.

Producer Price Index (PPI)

What It Measures: This is the price of goods at the wholesale level for the past month, and a first sign of inflation.

The Breakdown: The Producer Price Index declined 0.5% in February. This marks the fourth-straight month that wholesale prices have fallen. This came as a surprise to economists, who were expecting the February PPI to rise 0.4%. A 1.6% drop in wholesale food prices, the largest such decline in two years, offset a 1.5% decline in wholesale gasoline prices. Meanwhile, the core PPI, which excludes food and energy prices, remained unchanged.

The Bottom Line: Over the past 12 months, the core PPI has risen 0.7%; however, the headline PPI has pulled back 0.6%. This is the first time ever that the PPI has declined over a one-year period. Clearly, deflation is spreading, which means that the Federal Reserve cannot raise key interest rates, since it would further strengthen a soaring U.S. dollar.

Louis Navellier is a renowned growth investor. He is the editor of five investing newsletters: Blue Chip GrowthEmerging GrowthUltimate GrowthFamily Trust and Platinum Growth. His most popular service, Blue Chip Growth, has a track record of beating the market 3:1 over the last 14 years. He uses a combination of quantitative and fundamental analysis to identify market-beating stocks. Mr. Navellier has made his proven formula accessible to investors via his free, online stock rating tool, PortfolioGrader.com. Louis Navellier may hold some of the aforementioned securities in one or more of his newsletters.

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