It is too early to write demise on the American consumer.  

Retail sales unexpectedly fell in September for the first time in seven months and the GDP component control group was flat, eliciting concerns that the manufacturing contraction might be starting to damage the far larger consumer sector.

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Overall retail sales fell 0.3% in September and sales ex-autos fell 0.1%.  All three missed their respective median predictions of 0.3% for sales, 0.3% for control and 0.2% for ex-autos

Market reaction was muted. Treasury yields declined with the 2-year and the 10-year losing 3 basis points each to 1.59% and 1.74%. The spread widened 1 point from Tuesday’s close.  Equities were unchanged as the Dow was off 7.81 points at 1:06 pm in New York. 

The biggest mover was the dollar dropping about 50 points versus the euro to 1.1080 and 10 points versus the yen to 108.68, both at 1:10 pm EDT.  Sterling was trading at 1.2863 near the high of the day as anticipation continues that the UK and the EU are near an exit deal.

The odds for a Federal Reserve 0.25% rate cut at the October 29-30 FOMC meeting rose to 90.3% from 75.4% on Tuesday.

CME Group

The control group decline comes after it had averaged 0.733% monthly from March through August, for the strongest run in 16 years.  Retail sales for August were revised upward from 0.4% to 0.6% and the ex-autos number rose to 0.2% from flat. The August control group number was unchanged at 0.3%.

Manufacturing sentiment and business spending have been fading for a year driven lower by the 15-month trade war with China which is cited by executives as their greatest concern. Businesses have been unwilling to invest until a settlement is reached.  

The manufacturing purchasing managers’ index was below the 50 division between expansion and contraction in August and September.  Business sentiment in the 70% of US economic activity tied to the service sector has also declined but at 52.6 in September it remains expansive though the lowest in two years.

Job creation has slowed in 2019. The 3-month moving average for non-farm payrolls has decreased from 245,000 in January to 157,000 in September. The unemployment rate fell 0.2% to 3.5% last month, a 50-year low, as the economy created 136,000 new positions and revisions added 45,000 to the July and August totals. 

Reuters

Reuters

The US economy continues to produce sufficient jobs to supply work to the 150,000 or so new entrants to the labor force each month. When these are combined with the backlog of unfilled positions from the last 30 months the upward pressure on wages has stayed firm.

Annual wages rose 2.9% in September. It was the first month without at least a 3% gain since last August. The unemployment rates for Hispanic and African-Americans workers reached historical lows.

Consumer sentiment rebounded in October after sliding sharply in August and September.

The Michigan Consumer Sentiment Index climbed to 96 from 93.2 in September and 92.0 in August bringing it back to the mid-point of the last two years. The component indexes for current conditions and expectations also rose with consumers’ immediate outlook gaining the most in a year.

The retreat in consumer purchases in September is likely a solo event rather than a signal that households are beginning to tread a lower path in consumption. Jobs and wages remain healthy and unemployment continues at levels long considered to be full employment by economists. Initial jobless claims give no hint of an incipient labor contraction.

The tentative trade agreement with China, if and when it is fleshed out and signed over the next weeks may help to mitigate the business angst that has stymied investment spending. It should be an equally beneficial tonic for consumers.  

One month is not a trend. There are as yet almost no indications that the US consumer is doing anything other than taking a deep breath.

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