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Take a Deep Breath, Because Here Comes the Pain

Nothing in life is free. That also applies to the data schedule.

After a week that was extremely short on major data, the upcoming week’s schedule is overflowing with it, with the mid-month price, production and sales data crammed into a holiday-shortened four-day week.

Hurricane Delta is hitting the already-damaged Gulf Coast as we speak. While the impact of the multiple hurricanes that have hit the region hasn’t really shown up in the national data, this could be the one that could be the exception.

And speaking of stormy weather and uncertainty, we may or may not get the second Trump-Biden debate on Thursday. Given the spectacle of the first debate and President Trump’s positive COVID-19 diagnosis, the committee on debates has declared that the week’s event will be entirely virtual. President Trump said he will not participate if that is the case, though he has been known to reconsider some of his decisions in the past.

Maybe there is a middle ground. Remember those isolation booths they used on 1970s-era game shows to keep contestants physically apart and prevent them from hearing and shouting out answers? There must be a few of those lying around somewhere.

Also, the IMF is holding its annual meeting next week, virtually of course. The release of the World Economic Outlook on Tuesday will show some improvement in the outlook from the last estimate in July, but a resurgence of COVID-19 cases in Europe and parts of the US could play the spoiler. The outlook for 2021 will be more telling.

Slower retail sales growth a return to normal

The rate of growth in retail sales slowed in each of the last four months, bringing the monthly gains more in line with “normal” times. While motor vehicle sales partially recovered in August from a July drop, continuing declines in sporting goods and a sharp drop-off in grocery store sales impacted both the headline number and the underlying control group measure. That closely watched measure fell for the first time in four months in the data reported last month.

The period between late back-to-school sales and early-holiday sales has narrowed, basically just September and October now. Even that will be stretched this year as the start of in-person learning varies widely across regions.

Still, this quieter period should give some indication of how demand is faring after the initial plunge and subsequent rebound from the pandemic.

Motor vehicle sales are expected to post a further gain in September, based on the industry data released last week. However, declines are likely in other retail components.

As the weather turns cooler, outdoor dining will be less prevalent and restaurants will be more reliant on take-out orders, much as they were early in the shutdowns. After two months of gains above 4%, look for food services spending to decline in September.

The opposite side of the coin will be a rebound in grocery store sales after a sharp August decline, as consumers shift back to dining at home.

Gasoline prices fell slightly in September, a negative for service station sales in the month. This category posted increases in each of the last four months, so reduced driving will translate into a decline in the series in the coming months.

After four months of increases, apparel sales should also slip. However, this is not the normal back-to-school season. Seasonal adjustment factors expect sales to occur in August. This year, though, some students started in-person school in August, others September, still others in October, November, and beyond.

Released after retail sales, August business inventories are on track to rise by 0.4% pending a revision to the 0.8% gain in retail inventories from the advance reading. Wholesale inventories rose by 0.4%, while factory inventories were flat.

Based on data already released, business sales are on track to rise by 0.6%. Retail trade sales were up only 0.1% in August but are subject to revision with the retail sales release. Factory shipments rose by 0.3% in July, while wholesale sales surged by 1.4%.

US Inventories and Sales to Date
Source: US Commerce Department

Manufacturing continues its slow recovery

The national manufacturing data have been indicative of modest expansion, with the ISM’s reading falling only slightly to 55.4 in September from 56.0 in August. The first look at regional data for October, released in the coming week, should continue that trend.

The Empire State reading rebounded in September while the Philadelphia Fed’s reading held roughly steady. With COVID cases continuing to decline in the Northeast region, it is expected that these measures will remain near their current levels. The question is whether other regional readings, especially those in the Gulf Coast area, will follow suit.

Industrial production for September should include a fifth straight increase in manufacturing production, including a rebound in motor vehicle production after a decline in August.

Utilities production is expected to also rebound from a decline in August, reflecting continued demand for electricity as people work and learn from home. Temperatures were more in line with normal levels, so the rebound is likely to be mild.

Mining production plunged in August due to Hurricanes Laura and Marco. While the names of the storms that hit the Gulf Coast in September don’t ring out as loudly, there were still some weather impacts that will restrict a sharp recovery in the September data. The weekly data confirm little change in the number of rigs.

Inflation still quiet in the background behind other measures

The monthly business and consumer inflation measures released this week will gather some attention, coming ahead of the production and sales data. But barring results that are off the charts, inflation remains less concerning than other measures.

Through August, business inflation was down 0.2% year/year and even the core measures were up only modestly after sharply lower energy prices were excluded. Food prices were up slightly year/year.

For consumer prices, the year/year rates were a little more brisk, up 1.3% overall and up 1.7% excluding food and energy prices.

While all these measures have improved from the depths of the pandemic, they remained significantly below the readings at the start of 2020. As a result, most analysts and the Fed intend to treat the inflation data as a pot on the back of the stove – it should be watched, but it’s not the main dish.

The September data are likely to continue the recent trend, with mild gains in both the overall and core readings. Gasoline pump prices remained low and don’t appear to have moved either higher or lower in general. As a result, energy prices may have rebounded at the business level due to weather-related shortages, but are likely to be stable at the consumer level.

Food prices are expected to rise in the month, specifically for food at home. There should be a more modest increase for food away from home, reflecting the shift away from eating out due to cooler weather.

Core price measures are expected to also hold their recent trends, keeping year/year rates below their pre-COVID levels.

Consumer sentiment dependent on election season, stimulus

The preliminary Michigan Sentiment index for October will not reflect feelings about Thursday night’s second presidential debate, but will certainly capture feelings about the first one and last night’s vice presidential debate.

The October IBD index released earlier this week suggested that consumers are looking past the noise. That index rose to 55.2 in October from 45.0 in September, reflecting gains in the outlook for personal finance and an increased confidence in the federal government.

However, IBD also attributed the sharp increase in October to hopes that further stimulus measures will be passed. President Trump said that he would prefer not to discuss a large stimulus package until after the election, but later signaled that he may be open to further discussions.

In addition, the IBD poll was taken on or before October 1, before Trump announced his positive diagnosis of COVID-19 and was hospitalised.

As a result, the Michigan and Conference Board measures of confidence could decline this month despite the positive signal given by the IBD measure.

Initial claims remain in tight range

The level of initial claims declined modestly in the October 3 week, remaining in a tight range for the last six weeks. However, the expiration of the stimulus measures will push more companies to lay off workers going forward.

Hurricane Delta is hitting too late in the October 10 week to impact next week’s claims date. However, it may cause some state-level reporting difficulties next week in that region.

The four-week moving average decline for the tenth straight week in the data released on Thursday, as a relatively large 893,000 level rolled out of the equation. The average may decline again in the coming week’s data, as an 866,000 level rolls off.

The level of continuing claims should remain on a generally downward trend due to the combination of displaced workers finding jobs and others seeing their benefits expire.

Fiscal year Treasury budget gap shows the full impact

The Treasury’s September budget statement will include the worst fiscal year gap in memory, with the substantial stimulus outlays the obvious factor. The timing of the release will be based on how quickly Treasury can compile the year-end data.

Through August, the fiscal year gap stood at $3.0 trillion, compared with $1.1 trillion over the same period a year earlier. Outlays were up nearly 46% in the current fiscal year, while receipts fell by about 1%.

The question is, does it matter? Not to the Congress or the White House, and certainly not to the people and businesses that received the stimulus.

One final note: the delay in passing new stimulus measures pushes those outlays, if they ever do pass, into the 2021 fiscal year. So, there will be an opportunity to surpass this year’s gap if things don’t improve.

Separately, from Extract Analytics, the upcoming week’s outlook for the S&P 500 a pre-election upsurge in turbulence accompanies bullish developments.

Kevin Kastner

kevin@macenews.com

www.macenews.com

Julie Ros

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