Flattening retail sales, declining inventories and real output

Yesterday’s financial print in the United States indicated a 0.4% MoM and a 1.6% YoY rise in retail sales for April 2023. The data showed that industrial production increased by 0.5% MoM and 0.2% YoY during the same period. Business inventories shrank by 0.1% MoM, and manufacturing production jumped by 1% MoM (while showing a decline of 0.9% YoY). As this mix of data did not help to bring much clarity to the market, we would like to look at the bigger picture rather than at monthly changes in these metrics.

Retail sales have been trending relatively sideways since March 2022. Moreover, since around the same time, business inventories have continuously declined, suggesting that businesses are not stacking up goods for sale (and are likely anticipating lower demand in the future). The real output in the manufacturing sector dropped slightly lower in the past half year, and the real output in the nonfarm business sector has been declining for much longer (at least since 4Q21). Furthermore, based on the preliminary report from BLS, nonfarm business sector labor productivity decreased by 2.7% in the first quarter of 2023, while manufacturing sector labor productivity dropped by 1.3%.

These developments are not particularly bullish and should have investors on high alert. With that said, we continue to wait for more bad data (concerning rising unemployment, declining consumer spending, growing delinquencies on debt, etc.), which should finally start spooking the overly complacent market.

Illustration 1.01
Illustration 1.01 shows the chart of U.S. retail sales. This metric can be seen flattening since at least March 2022.

Illustration 1.02
Illustration 1.02 displays the business inventories.

Illustration 1.03
The picture above shows the real output in the nonfarm business sector.

Technical analysis gauge
Daily time frame = Neutral
Weekly time frame = Neutral
*The gauge does not necessarily indicate where the market will head. Instead, it reflects the constellation of RSI, MACD, Stochastic, DM+-, ADX, and moving averages.

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DISCLAIMER: This analysis is not intended to encourage any buying or selling of any particular securities. Furthermore, it should not be a basis for taking any trade action by an individual investor. Therefore, your own due diligence is highly advised before entering a trade.