Core retail sales (ex auto’s, gasoline and building materials) rose .3% m/o/m exactly as expected for October. September was revised up by one tenth so a touch above the forecast when taken together. After the spike in sales of auto’s and building materials post hurricanes, there was some moderation in these categories in October. Auto sales rose .7% m/o/m after jumping by 4.6% in September. Building materials fell by 1.2% after rising by 3% in the month prior but remain up by 11% y/o/y. Interestingly, for the 3rd month in the past 5, online retailing fell but they are still up a solid 9.6% y/o/y. The m/o/m data was likely influenced by the noise that Amazon’s prime day had in July and where sales spiked. Elsewhere, sales gains were seen in furniture (also likely helped by post Harvey rebuild), electronics, clothing, sporting goods and even department stores (although are still down 1.4% y/o/y).
Bottom line, core retail sales were up 3.4% y/o/y in October which is just about spot on with the 5 year average of 3.3%. I can still only call this mediocre as the rate of gain in the prior two expansions was above 5%. Higher healthcare costs and rents are diverting a lot of disposable income.
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Speaking of inflation, CPI in October rose .1% m/o/m and 2% y/o/y. The core rate was higher by .2% m/o/m and 1.8% y/o/y. This was about in line with expectations. Energy prices fell 1% m/o/m after the Harvey driven spike in September. They are up 6.4% y/o/y. Food prices were flat from September while up 1.3% versus last year. Services inflation ex energy picked up by .3% m/o/m and 2.7% y/o/y and remains the sticky component of inflation. Persistent rent increases has much to do with this. Rent of Primary Residence was up .3% m/o/m and 3.7% y/o/y. The underreported Owners Equivalent Rent was also up by .3% m/o/m and 3.2% y/o/y. Medical care rebounded by .3% after falling by .1% in September. The y/o/y gain was 1.7% which is of course modest for this sector and maybe now that people are learning the cost of healthcare via higher deductibles, they are being better ‘shoppers.’ Goods price gains remained under pressure as they fell 1% y/o/y while up .1% m/o/m. Weighing here was a decline in new and used car prices and clothing y/o/y. Used car prices did bounce though in October m/o/m led by post Harvey buying.
Bottom line, we have goods deflation and services inflation with commodity price changes creating the ups and downs in the headline figure. The Fed keeps focusing on the flawed PCE (underweight in housing and weighed down by government price fixing of healthcare) while the core CPI rate hasn’t been below 1.6% since 2011 and has averaged 1.9% since 2010. All another rate hike will do next month is bring the fed funds rate to 1.5%. It is a shame that the Fed essentially missed its rate hike window and now finds the need to catch up in the 9th year of this aged expansion. In the next recession they’ll cut rates again (not many to use) and likely use QE but they should understand that the cost of capital with rates already so low won’t be the binding constraint that they’ll feel the need to unleash.
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The NY manufacturing index for November fell to 19.4 from 30.2 and that was below the estimate of 25.1. This is a 4 month low but remains well above the flat line. The components were mixed. New orders rose 2.7 pts but after falling by 7 pts last month. Backlogs fell 7.9 pts to -4.6 and that’s the first trip below zero since August. Employment fell by 4.1 pts while the workweek went slightly negative. Inventories rose back above zero. Prices paid moderated by 2.7 pts but prices received were up by 2.2 pts. Delivery times, slowed by the hurricanes, picked up. Positively within the data was the 5.1 rise in the overall 6 month outlook which at 49.9 is the best since 2012. Capital spending plans rose 3.5 pts to the highest since April but technology spending plans fell by almost 6 pts.
Bottom line, although the headline index fell more than 10 pts from October, the 19.4 level is still good and manufacturers are optimistic about the coming 6 months. A weaker dollar, economic strength overseas and an inventory rebuild has been a boost to manufacturing nationally.
Peter is the Chief Investment Officer at Bleakley Advisory Group and is a CNBC contributor. Each day The Boock Report provides summaries and commentary on the macro data and news that matter, with analysis of what it all means and how it fits together.