De Groote Financial Group May 13, 2016 No Comments

Producer Price Index Up 0.2% in April, Flat Year-Over-Year…

Excluding food and energy, the measure of wholesale prices rose just 0.1% last month, and is only 0.9% higher over the same period last year.
What it means– In the official measures, inflation remains absent. Clearly, they don’t give a lot of weight to things we actually buy on a regular basis, like health insurance. But hey, televisions cost less, so what’s not to like? This report isn’t one of the main guides used by the Fed when deciding on rates, but it is important. Without pressure on suppliers, it will be hard for the central bank to justify higher rates.

U.S. Crude Oil Inventory Fell 3.4 million Barrels…

Analysts expected a build of 2.8 million, so the draw surprised them. Still, inventory sits at 540 million barrels, just shy of the record high and 11% higher than this time last year.
What it means– There’s no question U.S. energy companies are pumping less, but other countries are pumping more. A Saudi Arabian official noted that the kingdom will pump as much as possible, trying to squeeze out every last dime, because they see this as the end of an era. The Saudis will use the revenue to wean the country off of its oil revenue dependence. This leaves all other producers scrambling for market share, which should keep the world awash in oil, and prices low.

Macy’s Earnings Disappoint, Sending Retailers Lower…

The department store’s income fell 40%, while revenue dropped 7.4%. Fossil also disappointed and Gap issued a warning. The news sent Macy’s stock down more than 14%.
What it means– Brick-and-mortar retailers, particularly department stores, face a demon they can’t kill. Internet shopping is getting better, with a wider selection and faster delivery times. Why go to the store when I can order from my home or office? The migration to online shopping, along with a general lull in consumer spending, is painting a bleak picture for these retailers.

Retail Sales Rose 1.3% in April, Beating Expectations…

After falling 0.3% in March, retail sales reversed higher last month, beating the consensus estimate of 0.9%.
What it means– Auto sales jumped 3.2%, but even without that component, retail sales increased 0.9%. Almost every sector rose. Considering the note above about brick-and-mortar retailers, a key point in the retail sales report was that non-store retailers also enjoyed gains. This is good news for the economy, but bad news for those stores.

China Announces Plans to Stimulate Exports…

Country officials intend to increase bank lending, provide bigger tax rebates, and issue more export credits. The stimulus news boosted equity and commodity markets around the world.
What it means– Well, they’ve got to do something. Growth in the Middle Kingdom is drifting lower, while capital goods stack up. Domestic demand isn’t keeping up with production. Their only hope for avoiding an ugly downturn is to pawn off their excess stuff on the rest of the world.

Doug De Groote, CFP®, MBA, CTC
Managing Director

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