US: Focus on retail sales and industrial output figures – BBH

Ahead of the weekend the US reports a slew of data and the most important are the August retail sales and industrial output figures, suggests the analysis team at BBH.  

Key Quotes

“We suggest there is upside risk to the median forecast that US retail sales rose 0.1% August.  That risk stems partly from prices, like gasoline, and partly from volume, as the Redbook weekly figures have been rising.  The market has already seen that auto sales were softer.”

“Industrial output is also expected to have risen 0.1%.  Here, although the bar is low, we are concerned about downside risks stemming from auto related output and some slippage from the energy sector.  Manufacturing itself may have fared better.  Recall manufacturing employment rose by 36k in August, the largest increase since August 2013, which itself was the largest since March 2012.  Many economists are puzzled by the lack of more robust investment given the low interest rates.  We are struck by the relatively low capacity utilization given the maturity of the expansion cycle.  Capacity utilization rate was 76.7% in July and is expected to be unchanged in August.”  

“The US also reports the Empire State manufacturing survey for September.  It will be overshadowed by the retail sales report.  Later, the University of Michigan's consumer sentiment and inflation expectations survey will be released.  The long-term inflation expectation stood at 2.5% in August.  It is expected to be unchanged.  It has not been above 2.6% since March 2016.  It has not been below 2.4% this year.  This seems like the definition of stability.”  

“US rates remain elevated.  The 10-year stands near 2.20%, while the 2-year stands near 1.38%.  The 2-year premium to Germany is around 207bp, nearly the highest since April 10.  Bloomberg estimates the odds of a December Fed hike have risen to 50%.  Today’s data will help determine if these US rate trends can be maintained.”