The Empire State Manufacturing Survey: April 2012

The Empire State Manufacturing Survey consists of a series of diffusion indices distilled from a monthly survey of New York regional manufacturing executives and seeks to identify trends across 22 different current and future manufacturing related activities.

Today’s report showed a notable deceleration of current assessments of manufacturing activity and a continued decline to future assessments with the current activity index falling to 6.56 while future activity declined to 43.12.

Current prices paid declined to 45.78 while current new orders weakened to 6.48 and assessments of future new orders improved to 45.78.

Conspicuous Correlation: Retail Sales March 2012

Today, the U.S. Census Bureau released its latest nominal read of retail sales showing an increase of 0.8% from February and an increase of 6.5% on a year-over-year basis on an aggregate of all items including food, fuel and healthcare services.

Nominal "discretionary" retail sales including home furnishings, home garden and building materials, consumer electronics and department store sales increased 1.61% from February and increased 5.91% above the level seen in March 2011 while, adjusting for inflation, “real” discretionary retail sales increased 3.23% over the same period.

On a “nominal” basis, there had appeared to be “rough correlation” between strong home value appreciation and strong retail spending preceding the housing bust and an even stronger correlation when home values started to decline.

The following chart shows the year-over-year change to nominal discretionary retail sales and the year-over-year change to nominal the S&P/Case-Shiller Composite home price index since 1993 and since 2000.

As you can see there is, at the very least, a coincidental change to home values and consumer spending during the boom and then the bust, but as home values have continued to decline, retail spending has remained low but has not continued to consistently contract.

Looking at the chart below (click for full-screen dynamic version), adjusted for inflation (CPI for retail sales, CPI “less shelter” for S&P/Case-Shiller Composite) the “rough correlation” between the year-over-year change to the “discretionary” retail sales series and the year-over-year S&P/Case-Shiller Composite series seems now even more significant.

University of Michigan Survey of Consumers April 2012 (Early)

Today's early release of the Reuters/University of Michigan Survey of Consumers for April indicated a decline in consumer sentiment from the prior month with a reading of 75.7 but improvement on an annual basis with the level increasing 8.45% above a year ago while one year inflation expectations eased to 3.4%.

The Index of Consumer Expectations (a component of the Conference Board's Index of Leading Economic Indicators) climbed to 72.5, and the Current Economic Conditions Index declined to 80.6.

It's important to recognize that consumer sentiment has seriously eroded over the past few months with the current results remaining near levels not seen since 1980, a major indication that consumers are in the process of tightening even further on spending.