3 Numbers: US retail spending not the clincher
- US jobless claims in the US may rise in September but remain near a 43-year low
- US retail sales in August should remain flat for the second straight month
- Industrial output poised to fall in August after sharp gain in the previous month
By James Picerno
Thursday’s a busy day for US economic news, which will provide deeper context for deciding what to expect when the Federal Reserve issues a new monetary policy statement next week.
Among the releases to watch: the weekly update on jobless claims and the August numbers on retail sales and industrial production.
US: Initial Jobless Claims (1230 GMT) Despite the recent run of hawkish comments from Fed officials in recent weeks, the crowd is still downplaying the prospects for a rate hike at next week’s monetary policy meeting.
The probability that the central bank will announce a rate hike on September 21 is only 15%, based on Fed fund futures in early trading yesterday via CME data.
Perhaps that’s partly due to the fact that a monetary dove had the last word before yesterday's blackout period started – the week-long stretch before the Federal Open Market Committee meeting when public commentary from Fed officials is verboten.
Fed governor Lael Brainard on Monday said that soft inflationary pressures and macro uncertainty make the case for pre-emptive tightening “less compelling”. She added that “the response of inflation to unexpected strength in demand will likely be modest and gradual, requiring a correspondingly moderate policy response”.
If there’s a counterpoint to remaining cautious, surely the stellar trend with initial jobless claims tops the list of economic exhibits. New filings for unemployment benefits remain near a 43-year low, implying that the labour market is still poised for solid growth.
Although economists expect that we’ll see a modest rise in claims for the week through September 10 – up 6,000 to seasonally adjusted 265,000, according to Econoday.com’s consensus forecast – that’s still one of the lowest readings in decades.
Today’s update is expected to support an upbeat outlook on job growth, but that alone probably won't sway the market from projecting that the Fed will again postpone a rate hike next week.
Headline retail sales increased 2.3% for the year to July, which is a middling performance relative to the annual pace in recent months.
But Econoday.com’s consensus forecast calls for a second month of flat spending in August for the monthly comparison. The forecast translates into a fractionally strong year-on-year annual pace.
If consumption is due to flatline for a second month, the news will further erode the already fading notion that the central bank will push ahead with a rate hike at next week’s FOMC meeting.
Meantime, a weak sales report will challenge the idea that consumer spending continues to be a bright spot for the US economy.
By some accounts, the Fed’s reluctance to raise rates is primarily related to soft inflation pressures. But the surprisingly modest rise in payrolls last month implied that economic growth still isn’t strong enough to squeeze monetary policy.
Today’s retail sales update looks set to strengthen that narrative.
Output is set to decline 0.3% for the month, according to Briefing.com’s consensus forecast. The prediction translates into a modestly deeper year-on-year decline.
A setback in the annual rate would be worrisome as it would mark the first time since March that the contractionary trend hasn’t eased in annual terms.
It doesn’t help that the ISM Manufacturing Index in August dipped back into contractionary territory for the first time in six months.
“We’re still in a depressed manufacturing environment,” noted a US economist at Deutsche Bank Securities earlier this month.
“That throws some doubt as to whether you can get to above-trend growth that the Fed needs to see over the back half of the year in order to take another step” in hiking rates.
Such thinking will resonate a bit more if today’s update shows that industrial activity slumped in August at a deeper rate.
James Picerno is a macro analyst/editor at CapitalSpectator.com. Follow James or post your comment below to engage with Saxo Bank's social trading platform.