US: Retail sales not too bad, but weakness in manufacturing and housing

In March, US retail sales rose 0.7% M/M following an upwardly revised 0.5% M/M in February and falling 0.8% M/M in January, earlier reported flat. Sales excluding cars and gasoline, which provide a better picture of the underlying strength, rose by a more moderate 0.4% M/M in March, as the rise in gasoline prices boosted sales at gasoline stations (3.1% M/M). The 3-month average growth rate in sales showed underlying retail sales growing 4.6% in the three months through March compared to the previous three months, which compares with a 5.1% in February and 4.3% in January. Overall, retail sales report looked good, but sales at gasoline stations, largely a price effect cloud the picture, while un-seasonal mild weather in March may have affected sales in some categories, like building materials and clothing.

The New York Empire State Manufacturing Survey failed to rebound in March following the drop in February. As such, the general business conditions index remained close to the 2-year lows of March at 3.8 in April. The underlying sub-indices confirmed the weak headline figure, as new orders stabilized at a 2-year low, shipments fell and unfilled orders remained in negative territory. Employment also declined. Prices showed a mixed picture, as the prices paid rose to their highest level since September last year, but the prices received fell to a 2-year low. Overall, the report indicates that manufacturing conditions remain very weak.

The TIC data showed the purchase of US long-term securities slowing in February to USD 58.1B from 98.8B in January, as investors bought fewer US stocks and agency bonds.

Business inventories rose 0.3% M/M in February, bang in line with the expectations.

The National Association of Homebuilders headline index dropped for the second consecutive month following some rebound in the period October 2006 to February 2007. The index fell to 33 from 36 and is only three points of its low. Sub-prime mortgage problems continue to weigh. All three sub-indices were down, but losses were the biggest in future and current sales, while the traffic sub-index lost only one point. The NAH pointed to tightening lending standards.

EMU: Headline inflation still below 2%

In the euro zone, the flash CPI was confirmed at 1.9% Y/Y in March up from 1.8% Y/Y in February. As such, euro zone headline inflation remained for the seventh consecutive month below the 2% level. The core CPI came out at 1.9% Y/Y in March, the same as in February. This signals that underlying inflationary pressures remain rather moderate, as most of the pickup in core inflation was related to the German VAT increase.

Other: Rise in core PPI to raise concerns at BoE

In the UK, output PPI rose a stronger than expected 2.7% Y/Y in March compared to 2.3% Y/Y in February. The increase was mainly due to other manufactured products and petroleum product prices. The price rise in tobacco and alcohol products was largely due to Budget increases. Core output PPI rose too from 2.7% Y/Y in February to 2.9% Y/Y in March, still close to the cycle highs at 3.0% Y/Y. Input PPI rebounded from ??“1.2% Y/Y to 0.7% Y/Y on oil prices. The rise in the core output PPI will raise concerns within the MPC that the expected slowdown in inflation will be more limited than first thought and that tighter monetary policy will be needed to bring the inflation rate back to the target in the medium term.