Greenshoots in the US?

US retail sales rose 0.3% in February, a little more than expected. The news was blunted by sharp downward revisions to the January series, leaving the level of retail sales lower and pointing to somewhat less personal consumption to drive GDP here in Q1.

The take away is that as the weather returns to a greater semblance of normalcy, the US economy should be expected to return to trend. Since mid-2009, the US has grown at an average quarterly annualized pace of 2.4%. We acknowledge that there are other factors slowing the world's largest economy in Q1. These include slower inventory growth (after a surge in H2 13), the end of the tax break for new capital investment, and the end of the emergency jobless benefits (direct impact on 1.7 mln Americans), but weather also took a toll.

Separately, the US reported a larger than expected decline in weekly initial jobless claims. At 315k, they stand at their lowest level since last November. Continuing claims fell for the third consecutive week.

It is also important to note that more reports are coming in better than expected. This represents a change in the pattern seen in January and most of February. This suggests that the market has adjusted its expectations and now appreciates the magnitude of the economic slowdown.

The component of retail sales that is used for GDP calculations excludes auto, gasoline and building materials. This measure rose 0.3% after a revised 0.6% decline in January. We also note that February is often the worst or second worst month for retail sales in a given year.

The US also reported stronger than expected import prices. The 0.9% increase in February was nearly twice what the consensus expected and the January series was revised to show a 0.4% increase rather than 0.1%. There are some upside risks then to Friday's producer price report that was expected to have risen by 0.2%.

Petroleum prices were up 4.4% on the month, and this may point to a wider trade deficit. Capital goods prices were off 0.2%. Imported goods from China rose 0.2% but were still off 0.4% year-over-year. Imports from Japan slipped 0.1% and were 3.2% lower than a year ago. Goods from the EU cost 0.1% more in February and were up 0.7% from a year ago.

US export prices rose 0.6% after rising 0.2% in January. On a year-over-year basis, the price of US exports has fallen 1.3%.

The FOMC meets next week. There is little doubt that it will continue on the path upon which Bernanke Fed put it. The bar to changing the measured tapering is high. While maintaining the course in the coming months, the FOMC's emphasis will be to reassure household; business and investor concerns that rates will remain low for an extended period. Triangulating among surveys and various market pricing, the first rate hike is not expected until late Q3 or Q4 2015.