Hoping For Lower Gas Prices (Relief At The Pump)? It's Not In The Data

Each week, various government agencies, industry research organizations, and universities publish reports on the current state of our economy. This new weekly podcast is our effort to connect the dots, putting opaque data together in a more meaningful way.

Here’s our look at the Economic Data for the trading week of April 20–24.

Today, it’s gasoline that’s front and center, as the continuing conflict over the Strait of Hormuz continues to grab the headlines, and strain our wallets with the ever-escalating price at the Pump.

Retail Sales were our pick for the number one economic report of the week. It is one of those reports that Wall Street watches like a hawk, because it provides real insight into the most important segment of the economy, the consumer.

As you know, consumers account for about 2/3 of the country’s economic activity. So, any indication that Retail Sales are climbing is good news — consumers are feeling good about their money and have money to spend. The opposite is the case when Retail Sales fall.

So the knee-jerk reaction to Tuesday’s Retail Sales Report was positive. Look at that: the increase in Retail Sales more than doubled for March, growing at 1.7% versus 7/10ths% the month before. All those high-frequency traders were quick to jump on the bandwagon, sending markets higher in an instant.

But then the analysts took a close look — turns out that all this sales growth was due to the cost of driving. That’s right: the 1% sales growth came from higher gasoline prices, which increased transportation costs. Take that away, and March’s sales growth was no better than February’s.

All this was powered by a dramatic rise in gasoline prices, up 15.5% for the month, something you already knew if you filled up the family auto. I expect that this trend will continue for the foreseeable future.

What’s more, we drew down another 4.5 million barrels of gasoline in March, which is on top of the over 6.4 million barrel drawdown in February. In total, the US gasoline supplies dwindled by almost 10 million barrels over those two months. That’s why I believe that pump prices likely won’t decline for some time.

It is important to note that this report is for the March month-end. April is nearly finished, but unfortunately, we cannot see the current data in real time. So that, regretably, nearly everything we view in the energy markets contains a month’s lag.

There was some good news from the Business community; here, confidence continued to improve across several indicators. Standard and Poor’s Global measures future business activity with its Purchasing Managers Index. These are measures of the current activity of the executives responsible for purchasing raw materials, components, and other ingredients used in future production.

When the Purchasing Manager’s Index rises above 50, it indicates that businesses are expanding. Which is exactly what they’re doing now — the manufacturing, service, and overall composite sectors all rose last month, showing that American businesses are looking forward to a brighter future.

However, while business outlooks improved, the same was not true for the American consumer — it’s evident that those gasoline prices are having a real impact. Each month, the University of Michigan measures the American Consumer Sentiment Index, and April’s survey recorded one of the largest drops in the survey’s history. For the first time since 1978, consumer sentiment fell below 50 — a sign that the most important segment of the economy, the consumer, is feeling the Hormuz Squeeze. Look for those Retail Sales numbers to start falling shortly.

And that’s a look at the important economic data reports for the Week of April 20–24:

Retail Sales rose, but only due to higher gasoline prices.

We continued to draw down gasoline inventories, suggesting higher prices are likely to persist for some time.

Business confidence grew as purchasing managers continued to purchase the ingredients for future production.

And finally, consumer sentiment declined dramatically to levels not seen in the University of Michigan’s Survey history.

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