• INDICATOR: March Retail Sales and Producer Prices
• KEY DATA: Sales: -0.3%; Excluding Vehicles: +0.2%/ Producer Price: -0.1%; Goods: +0.2%; Services: -0.2%
• IN A NUTSHELL:  “The consumer seems to have decided that visits to the mall are passé.”

WHAT IT MEANS: Consumers have been the broad shoulders of the economy, but carrying the load seems to tiring them out.  Retail sales faded in March, which was not a major surprise given that vehicle demand was off fairly sharply.  Indeed, excluding vehicles, which were due for a slump after having been strong for so long, demand for retail products rose.  Unfortunately, the gain was not very strong.  The details of the report were mixed.  Clothing was down but building supplies were up. 

Restaurant demand fell, a real eye opener since this was a leading sector, but furniture and appliances inched upward.  We didn’t do a lot of online shopping but we did visit general merchandise stores.  Gasoline sales jumped, but there was also a rise in gasoline prices.  Basically, we bought some goods here and there but not a lot of things in general.

On the inflation front, business costs remain under control as the Producer Price Index fell in March.  This was a strange report as goods prices actually rose while services costs declined.  That was a reversal of past reports.  The decline in services costs was pretty widespread.  It is unclear why there was a sudden downdraft in services prices, so we should not take this report as an indicator that we could see weak pricing in the largest component of the economy.  On the goods side, food costs decline but energy prices were up.  Excluding food and energy, wholesale prices rose modestly, a sign that any further acceleration in inflation should be limited.

MARKETS AND FED POLICY IMPLICATIONS: The first quarter of this year looks like it was a total downer.  We knew business investment was going to be soft because of the continuing problems in the oil complex and that exports were likely to be modest due to the strong dollar.  But there was some hope that the consumer would make up for those other sectors. 

Those prayers seem to have been dashed.  GDP growth could come in around 1% or even less, depending on inventories.  That would make it two consecutive quarters below 2%, which in itself is nothing great.  So, why has the consumer left the field of battle?  It isn’t because households don’t have the money to spend, they do.  It’s not as if confidence is faltering, it is not. 

So, is this the pause that refreshes or the pause that depresses?  My view is that the long, slow recovery has caused people to fundamentally change their buying habits.  Is the trip to the mall really something that is high on the priority list?  I am not so sure.  Parents don’t have to drop their kids off at the mall to get rid of them for a few hours anymore.  They just have to pay for data.  And the recession taught us that the things we once thought we needed, we really didn’t need.   Consumers will continue to consume, but the rate of consumption may have shifted downward, at least for a while.