Weekly Economic Cheat Sheet 10/19/15

Last Week

Data last week added to concerns that the US economy is losing positive momentum, as virtually every economic report, with the exception of jobless claims and consumer sentiment, missed estimates. While in a absolute sense US economic growth remains decent, the rate of change is what’s got people nervous.

No better number was representative of current sentiment towards the US economy last week than Retail Sales. September Retail Sales met headline estimates, but the details were a bit weaker, as the “control” group, which best measures discretionary spending, declined 0.10%. While that is an anecdotal negative on consumer spending, that decline is coming from a very high absolute level, so in aggregate consumer spending is still strong—it’s just a little less strong than before. But, in a nervous market, the incremental rate of change is all that matters, and that’s why people were sour on the consumer last week, despite data that really wasn’t that bad (and that goes for WMT guidance too—the macro commentary about retail spending was positive, but it was ignored by the Street).

Looking at the rest of last week’s data, it was generally disappointing. Empire and Philly Fed Indices, the first numbers from October, were easily the worst reports of the week. Both missed estimates (Empire -11.6 vs. (E) -7.0, Philly –4.5 vs. (E) -1.00) and New Orders (the leading indicators in the report) both declined. These regional indices are volatile and need to be taken with a grain of salt, but even so, it’s clear that the headwinds on manufacturing (courtesy of weak global demand and a stronger dollar) are not yet receding.

Turning to inflation, the September CPI report was a bit misleading, as “core” CPI rose 0.02% vs. (E) 0.01% and 1.9% yoy, up from the 1.8% in August. But, that seemingly “hot” inflation report isn’t going to have any effect on the Fed because much of the core increase came from housing metrics (tenants rent and owners equivalent rent), and that’s a bit of a statistical Frankenstein. Bottom line, despite the uptick in core inflation pressures, inflation remains tame from a Fed standpoint.

Looking at the good news, weekly jobless claims fell to a multi-decade low at 255k and are still contradicting the soft monthly jobs reports, while University of Michigan consumer sentiment beat estimates, implying the recent stock market turmoil hasn’t been too damaging to consumers’ psyches.

Finally, from a Fed standpoint both the data and commentary last week was dovish, and expectations for a rate hike now are firmly centered on March at the earliest (and they are starting to move beyond that). Comments from Fed officials Dudley, Brainard and Tarullo all seemed to continue to hedge against a December hike.

Bottom line, the data last week wasn’t particularly “bad” but this market is nervous about the potential for the US to be dragged down by the slow growth in the rest of the world. And while the numbers last week don’t confirm that’s happening fully, they certainly can be viewed that way. This market needs an economic confidence boost, and fast.

This Week

This week is book ended by important reports about the state of global growth. We already got the latest Chinese data, and on Thursday night/Friday morning we’ll get the October global flash PMIs. Again, these are crucially important because the market needs proof the global economy is stable. Japan and China data gets released Thursday night, while US and Europe numbers come Friday morning.

Outside of the global PMIs the next most important event this week is the ECB meeting Thursday. Obviously following the Nowotny comments last week (which were dovish) expectations have risen about the ECB eventually doing more QE. No one expects any decisions at this meeting (December is the earliest anyone thinks they could extend QE), but the commentary around “doing more” will be closely watched, and the Draghi Press Conference following the decision Thursday will be an important event—especially for the euro and EU stocks (HEDJ).

Domestically, its another quiet week of data. The September housing numbers start to hit with Housing Starts Tuesday and Existing Home Sales Thursday. Jobless claims remain important, and they need to continue to stay low and offer a contradiction to the soft monthly jobs report.

Bottom line this week, it’s all about global growth, and with the China data out of the way the focus will turn to the global PMIs Friday. Any hint of stabilization of global growth will be welcomed.