LIVE MARKETS-Ancient history, and then some: PPI, retail sales, consumer confidence, et al

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ANCIENT HISTORY, AND THEN SOME: PPI, RETAIL SALES, CONSUMER CONFIDENCE, ET AL

Much of Tuesday's data deluge harkens back to the olden times often referred to as "September," when the government shutdown was a mere gleam in Congress' eye.

The first report provides another look at the path of inflation in that storied, long-ago month.

The Labor Department's Producer Price Index (PPI) USPPFD=ECI, which tracks the prices U.S. companies get for their goods and services at the figurative factory door, increased on monthly and annual bases by 0.3% and 2.7%, respectively, in agreement with consensus.

The report suggests that some rising costs related to tariffs are being lobbed onto consumers' plates.

Core PPI, which excludes food, energy and trade services, was unchanged on the month and cooled down from August, rising 0.1% from the previous month's 0.3% growth. Year-over-year, however, core PPI is up 2.9%, a repeat of August's upwardly revised figure.

The report didn't appear to budge the needle regarding rate cut expectations.

"The trend seems to be that inflation is not worsening and that opens the door to a December rate cut,” Peter Cardillo, chief market economist at Spartan Capital Securities tells Reuters. "During the shutdown, if anything, inflation may have improved and not worsened because you had less demand."

"On the other hand (the data is) outdated news, so you have to look at it from that perspective," Cardillo adds. "It is a guide."

Financial markets are currently pricing in an 84.7% chance of a 25 bp interest rate reduction at the conclusion of the Fed's December policy meeting, essentially unchanged from Monday.

As this week marks the unofficial kick-off of the holiday shopping season, attention now turns to the U.S. consumer, who shoulders about 70% of the U.S. economy.

Receipts at U.S. retailers USRSL=ECI inched 0.2% higher in September, half the 0.4% increase analysts expected and marking a sharp deceleration from August's 0.6% gain.

Digging below the headline, a 2% increase at the gasoline pump is the attention-grabber, but it was offset by a 0.3% decrease in autos/parts, a 2.5% drop in sporting goods/hobbies, and a 0.7% slide in the closely-watched non-store retailers, which includes online shopping. The woebegone department store segment softened by 0.7% and has dropped 3.3% year-over-year.

Food and drink services rose by a healthy 0.7%.

The "control" figure, which excludes autos, gasoline, building supplies and food services - and is most closely correlated with the personal expenditures element of GDP - unexpectedly fell by 0.1%, in defiance of the 0.3% growth economists predicted.

"Underlying retail sales were much weaker in September than over the preceding few months," writes Oliver Allen, senior U.S. economist at Pantheon Macroeconomics. "The moribund labor market and ongoing drag on real incomes from tariff-induced price increases suggest that this slowdown is likely to be maintained."

While that was two months ago, more contemporary data from the Conference Board (CB) shows the consumer's mood is darker than expected this month.

CB's consumer confidence index USCONC=ECI plunged 6.8 points to land at 88.7, or 5% gloomier than analyst expectations.

On a more granular level, survey participants' assessment of present conditions deteriorated by 3.3%, while near-term expectations tumbled nearly 12%.

"Consumer confidence tumbled in November to its second lowest level since April after moving sideways for several months,” says Dana Peterson, CB's chief economist. "Consumers were notably more pessimistic about business conditions six months from now."

Data geeks will remember that a yawning gap between the present situation and expectations - as seen in the graphic below - is often a harbinger of recession. So the widening gulf between the two does not bode well:

Switching to the housing market, signed contracts for the pending sales of pre-owned U.S. homes USNAR=ECI were unexpectedly robust last month, rising 1.9% compared with the 0.5% consensus, according to the National Association of Realtors (NAR).

The number marked a robust acceleration from September's languid 0.1% increase.

The uptick partially reflects some softening in mortgage rates and a deceleration in home price growth, addressed below.

Still, the pending home sales index continues to wallow near the depths of the April 2020 pandemic shutdown nadir.

Home prices across major U.S. cities agreed with consensus by inching 0.1% higher in September, a repeat of the August reading.

Year-over-year, the Case-Shiller 20-city composite USSHPQ=ECI increased as expected by 1.4%, cooler than the 1.6% growth in the previous month.

For context, this represents the weakest annual price growth since early 2023, when the market was absorbing the initial shock of the Federal Reserve’s aggressive rate-hiking cycle,” says Nicholas Godec, Head of Fixed Income Tradables & Commodities at S&P Dow Jones Indices. “Yet unlike that period, which saw a quick rebound, current conditions suggest more persistent headwinds."

"With mortgage rates stubbornly elevated and affordability at multi-decade lows, the market appears to be settling into a new equilibrium of minimal price growth—or, in some regions, outright decline,” Godec adds.

Among the cities in the composite, 11 saw year-over-year declines. New York and Chicago once again led the year-over-year gainers with increases of more than 5%, while poor Tampa was once again the biggest loser, with home prices down more than 4% from a year ago.

Finally, the Commerce Department would have you know that the value of goods stacked in the store rooms of U.S. businesses USBINV=ECI was unchanged way back in August. Remember August?

(Stephen Culp)

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