US Economy Impolitely Refuses To Die

Thursday’s key macro data out of the US reinforced the message from Wednesday’s CPI report: The Fed’s work isn’t quite done.

Both retail sales and producer prices rose more than expected, and although one line of reasoning says the rise in gas prices increases the odds of a downturn given the implied erosion of discretionary buying power, the bottom line is that the American consumer continues to outperform expectations.

Retail sales rose 0.6% last month, matching the highest estimate from more than five-dozen economists who ventured a guess. The range was -0.3% to 0.6%. It’s worth noting, though, that June and July’s headline prints were revised meaningfully lower.

Caveats aside, August marked a fifth straight monthly increase in nominal sales.

Nine of 13 categories showed a gain. Nonstore retail sales were flat. Spending at food services and drinking places rose 0.3%. That’s the only services sector category covered by the release. Spending at gas stations jumped, commensurate with the increase in gas prices.

The ex-autos print, also 0.6%, beat estimates (+0.4%), as did the ex-autos/gas reading, which showed a 0.2% increase versus expectations for a small decline. Most notably for the purposes of Q3 growth projections, the control group notched a 0.1% gain. Consensus was looking for a small decline there too.

Meanwhile, PPI came in hot. Producer prices rose 0.74% last month from July, nearly double the expected MoM gain. It was the hottest MoM print since June of last year.

Ex-food and energy, wholesale prices rose 0.2%, in line with estimates.

Hopefully, you can explain the headline PPI overshoot without even reading the release. It was attributable to goods, and more specifically to energy and more specifically still, to gas.

Indeed, the energy gauge jumped 10.5% from July, the largest MoM increase on record. The gas gauge soared 20%.

There isn’t a lot (read: Anything) the Fed can do about that, but it’s vexing nevertheless. On the bright side, the PPI foods gauge receded 0.5% in August from July, the largest MoM decline since May.

Finally, jobless claims came in below estimates. Again. I didn’t even bother checking the terminal to see if the usual suspects parsed the numbers for signs of an “imminent” claims surge. At this point, those predictions were just flat-out wrong by virtue of being (far) too early. Even if claims surge next week (they won’t), it wouldn’t make the two or three people who’ve spent the last six months calling for an “any minute now” jump correct.

All in all, Thursday’s data made the case for economic resilience, thereby bolstering the “higher for longer” narrative and probably increasing the odds of a Fed hike in November at the margins. When juxtaposed with ECB forward guidance which clearly suggested the bar for additional hikes after Thursday’s move is high (given a worsening growth outlook in Europe), the US exceptionalism story is intact.


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3 thoughts on “US Economy Impolitely Refuses To Die

  1. There are about 85M owner occupied homes in the US. Pre-pandemic, about 4% of the homes were valued at greater than $1M. Currently, 8.5% of the homes are valued at greater than $1M.
    This implies that the occupants/families of an additional 3.8M homes are feeling much richer than compared to how rich they perceived themselves to be, pre-covid.
    This is just one of multiple reasons that the economy continues to perform better than expected.

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