A string of upbeat US economic data out Thursday may be seen as casting still more doubt on the Fed’s capacity to deliver on market expectations for aggressive rate cuts without facing charges of overt politicization.
Retail sales rose 0.7% in July, more than doubling estimates and printing ahead of even the most optimistic forecast from 70 economists. The range was -0.4% to 0.6%. It was the fifth consecutive monthly gain.
The less-autos figure was 1%, against expectations of a 0.4% rise. The control group also saw its largest advance since March.
As a reminder, personal consumption shouldered most of the burden during the second quarter for the US economy. Signs of a resilient consumer are good news at a time when recession fears are rampant. In the same vein, Walmart reported results on Thursday that included impressive comps and upbeat guidance.
Meanwhile, the Empire manufacturing index beat estimates for August, coming in at 4.8, near the middle of the range of
guesses forecasts. That’s up slightly from 4.3 in July, when the headline general business conditions index rebounded into positive territory after posting its largest monthly decline on record in June.
New orders rose, as did the employment gauge, although the latter stuck below zero for a third straight month. The outlook is still cloudy, though. “Indexes assessing the six-month outlook suggested that firms were somewhat less optimistic about future conditions than they were last month”, the New York Fed said. “The index for future business conditions fell five points to 25.7, and the index for future new orders also moved lower”.
Markets are palpably concerned that the global manufacturing slump will eventually make landfall in the US. An abysmal, contractionary Chicago PMI didn’t do much to alleviate fears (MNI’s barometer printed below 50 for a second month in July, stoking recession calls the day of the FOMC meeting).
Also on Thursday, the Philadelphia Fed said its manufacturing gauge beat estimates as well, printing 16.8 for August, near the upper end of the range and much better than the estimated 9.5. New orders rose to 25.8, but employment was weak. “Firms reported overall increases in manufacturing employment this month, but the current employment index decreased 26 points to 3.6, its lowest reading since November 2016”, the survey said.
Treasurys pared gains on the raft of better-than-expected data. Benchmark yields moved back to unchanged on the day and the dollar rose.
Unfortunately for the Fed, this just underlines a familiar dilemma. The economy is clearly holding up, but global uncertainty is running higher than ever, the yield curve is screaming “recession” and Donald Trump is just plain old screaming.
Thursday’s data comes two days after another hot CPI print, which raised questions about the notion that inflation is dead and buried, a narrative that helps underpin the case for rate cuts despite the resilient economy.
Now cue Larry Kudlow and Peter Navarro to explain that although the consumer is healthy and manufacturing is rebounding, negative rates would probably “be best” (to quote the first lady).