There were a few important reports on the U.S. economy released this morning. First, data from the U.S. Census Bureau showed that advance estimates of retail and food services sales in August totaled $474.8 billion. That was a 0.2 percent decrease from July, the largest monthly decline since January 2016, and much worse than the 0.1 percent gain analysts had expected. Most of the headline weakness was due to disappointing automobile sales but even core retail sales fell by 0.1 percent last month. The 1.1 percent plunge in nonstore retail sales (online merchants) exacerbated the August decrease but this was likely related to a natural pullback in spending following Amazon’s big Prime Day sale in July. Overall, though, this was still a disappointing report that suggests consumer spending, the largest component of the economy (GDP), will have a hard time this quarter matching Q2’s 3.3 percent pace of growth.
Next, data from the Federal Reserve Board of Governors showed that industrial activity in America slowed last month, as total production fell by 0.9 percent. That was significantly worse than expected and the largest monthly decline since May 2009. A lot of the weakness occurred in the mining and utilities arenas in August but the report’s authors argued that hurricane Harvey might have exacerbated such losses and altogether subtracted 0.75 percentage points from overall industrial production. As for manufacturing, which makes up roughly 75 percent of all industrial production, this component fell by 0.3 percent last month and capacity utilization, sometimes used as a leading indicator of inflation and potential output, slid to the lowest reading since March.
Elsewhere, the consumer sentiment index from the University of Michigan fell to 95.3 in September, worse than anticipated but still well above pre-election levels. Under the hood, surveyed Americans’ opinion of current economic conditions firmed this month but outlooks on the future deteriorated. Richard Curtin, director of the consumer survey, added that “The two hurricanes had a greater impact on expected economic conditions. Across all interviews in early September, 9% spontaneously mentioned concerns that Harvey, Irma, or both, would have a negative impact on the overall economy.” However, Curtin also stressed that “Renewed gains in incomes as well as rising home and equity values have acted to counterbalance the negative impacts from the hurricanes. Given the current resilience of consumers, recent events are unlikely to derail confidence.”
Sources: Econoday, Bloomberg, ZH, U.S. Census Bureau, FRBG, UoM, FRBSLPost author: Charles Couch