Actions speak louder than words/No build yet in inventories

Proving that how one feels don’t necessarily translate to how they act, the first look at March U of M confidence fell to 72.5 from 73.6 and matches a 4 month low and is 1.5 pts below expectations. Both Current Conditions and the Outlook fell. One year inflation expectations rose .1% to 2.8%, matching the highest since Oct ’09, likely due to the slow creep higher in gasoline prices which last night hit a fresh 17 month high. The key to confidence is the labor market and notwithstanding the improvement in retail sales, the labor market picture is still uncertain. IF, however, the economy is currently turning a corner in a sustainable way rather than seeing some reversion to the mean after the late ’08-early ’09 earthquake, employment will pick up and confidence will follow.

Following the unexpected fall in Wholesale Inventories on Wednesday which make up about 25% of Business Inventories, Jan Business Inventories were flat vs a forecasted gain of up .1% and Dec was revised lower to a fall of .3% from -.2%. Because sales rose .6%, the inventory to sales ratio fell to 1.25 from 1.26 and is at the lowest level since Nov ’07. Inventories were kept in check at the retail level due to a 1.5% decline at Gen’l Merchandisers which offset a .5% gain at auto related businesses. Manufacturer inventories rose by .2%. While we’ve seen a helpful contribution to GDP from the slowdown in inventory drawdowns, the hoped for build up is still not evident in the data. With this said, if the recent retail sales gains are more than just a blip, production will pick up. The answer to whether this happens though is the $64k question for the economy, among other things, as we look to the rest of 2010.

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