October PPI rose a mere 0.1% M/M, as a steep 1% M/M increase in food prices was offset by a surprise 0.8% drop in energy prices. Despite the benign headline PPI, Y/Y, headline PPI spiked to 6.1% from 4.4% previously. Core PPI did even better, stabilizing on the month, but also here the Y/Y reading rose to 2.5% from 2% in September. A negative basis effect was the reason. Both headline and core PPI were well below consensus estimates. Regarding core PPI, consumer goods dropped 0.3% M/M and capital equipment slipped 0.1% M/M. Intermediate PPI , up 0.1% M/M for headline and core show no signs of brewing inflation tensions, but the situation at the crude stage was less reassuring with headline crude PPI up 2.4% M/M and core crude PPI up 4.6% M/M. Overall, the benign PPI news is reassuring for the Fed, even if the November report might be less benign due to energy prices, but that report is published after the December 11 FOMC.

The October retail sales showed a cooling of consumption. Indeed, headline retail sales rose 0.2% M/M, while sales excluding the car sector were up 0.1% M/M, which means that real spending should have been about flat. The outcome was in line with expectations, but nevertheless weak. The big question is whether weakness is here to stay or whether it revives going into the key Christmas shopping season. The answer might go a long way in deciding whether the economy slides or not into a recessionary state and whether the Fed will start a series of additional rate cuts. The current report points to very weak Q4 PCE and a sub-trend GDP gain of maybe 1-to-1.5%. Housing-related retail sales show of course weakness, but also some sectors that aren’t tided to housing performed bad. Non-store retail sales fell 1% M/M. General merchandise stores and clothing were also weak, even if here the weather conditions might have been a negative.


EMU: Strong Q3 GDP, marking the peak?

Q3 GDP rose by 0.7% Q/Q and 2.6% Y/Y, almost in line with consensus estimate and with the national data published in recent days. However, more timely data suggest that the EMU economy is now over its peak and this should be confirmed when Q4 GDP is published.


Others: UK inflation report signals rate cuts

In the UK, the Bank of England November inflation report indicated that inflation would undershoot the target of 2% in two years time, if no rate cuts would occur. Upside inflation risks may however still prevent the Bank of England from cutting rates in the near term. More insight on the timing of the first rate cut will be available with the publication of the Minutes on the 21st of November.

The labour market data showed little evidence of a slowing economy, as the jobless claims fell by 9.9K in October following an upwardly revised 13.9K in September. At the same time average earnings growth in- and excluding bonuses remains rather benign and doesn’t show much signs of upward inflationary pressures. Labour market data however are a contemporary factor and usually have little to no leading character.