As expected, the auto dealer component was a big drag with a drop of 2.5%, which jives with the decline seen in unit sales. But, even outside of autos, there were several components that revealed weakness on the month. Gas stations decreased 3.1%, which was a function of price weakness relative to seasonal trend. And building materials, clothing/accessories, general merchandise, miscellaneous stores, and eating/drinking establishments all revealed declines as well.
Admittedly, the weakness could prove to be short-lived, if much of it is due to poor weather (as the chain store sales reports suggested). But, we would not underestimate the degree to which favorable tax flows were a big boost in the first four months of the year -- suggesting a more challenging trajectory going forward. The weakness in the data suggest second quarter real consumption could come in under 2%.May PPI Falls 0.4%
The overall-PPI decreased 0.4% in May, while the core index was unchanged. Overall, the data suggest inflation at the wholesale level is non-existent, which supports the view that the Fed can take its time in raising rates.
Of the four major aggregates (energy, food, core consumer goods, and capital goods), not one revealed a positive change on the month. As expected, energy led the weakness on the month, with the aggregate decreasing 2.3% -- led by a 9.6% drop in gasoline prices, as actual NSA trends fell well short of seasonals looking for a big price ramp-up ahead of the summer driving season. Food prices dropped 0.2%, led by weakness in meat prices.
As for the core aggregates, capital equipment prices decreased 0.1% and core consumer goods were flat. Price declines were seen across a number of components. The weakness in price trends is underscored by the year-over-year figures, where the finished goods aggregate is falling at a 2.7% year-over-year rate, intermediate goods are decreasing at a 3.1% year-over-year rate, and crude goods at a 15.8% year-over-year rate.
Overall, the data support the view that the Fed should feel no pressure to raise rates anytime soon and highlight the lack of pricing power currently facing corporations.