Hey, it’s Friday, and economic data could be a boring read this late in the week, so why not use a title from a 1990s classic hip-hop song (http://www.youtube.com/watch?v=mJgFU3U4X_Y)? Seriously, though, I didn’t sense much in the way of concern in the market regarding the February PPI report. Perhaps the release got lost in the shuffle of generally upbeat economic readings for the day, all of which were supportive of the broader market’s rally. However, the price action in consumer-sensitive stocks was weak in the immediate hours after the PPI crossed the wires, and didn’t exactly burn up a path into the close.
In my view, a pullback on the part of the surprisingly resilient U.S. consumer, driven by another round of price increases (2011 was price increase mania), is not baked into the valuations of consumer-sensitive stocks. Approach the sector, especially with a good portion at or near 52-week highs, cautiously.
The Real Deal on February PPI
Mr. Market was content on the headline and core prints being below consensus, but…
• Finished goods price declines are moderating, indicating some feed through of higher energy prices.
• Excluding food and energy, prices on intermediate goods logged their first increase in four months.
• There was an 11.7% decline in margins received by discount department stores.
• Three months of increases have been reported in transportation and warehouse costs.
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