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Economic Watch: Latest Indicators May Keep Lid on Interest Rate Hike

Retail sales in the U.S. posted another gain in August, leaving some wondering if it will be enough to push the Federal Reserve to hike interest rates from near zero for the first time in several years.

Evan Lockridge
Evan LockridgeFormer Business Contributing Editor
September 15, 2015
Economic Watch: Latest Indicators May Keep Lid on Interest Rate Hike

 

3 min to read


Retail sales in the U.S. posted another gain in August, leaving some wondering if it will be enough to push the Federal Reserve to hike interest rates from near zero for the first time in several years.

American Trucking Associations Chief Economist Bob Costello said in his Twitter feed on Tuesday that the “small gain in retail sales and soft industrial production during August…probably means no rate hike from Fed this week."

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Overall sales increased 0.2% from the month before, slightly below many analysts' expectations, but they also have not declined for six straight months.

The increase came despite a 1.8% drop in sales at service stations due to lower gasoline prices.

July’s overall level was upwardly revised from a 0.6% gain to a 0.7% improvement from June.

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Compared to August 2014, last month’s level was 2.2% higher, down from a peak of 4.9% a year earlier.

Auto sales rose 0.7% in August, about half what was seen in July. Excluding autos, retail sales rose just 0.1% in August. Core sales, which remove food and gasoline sales, have averaged 0.4% on a monthly basis since June. On an annual basis, core sales are up 1.3%, down from a peak of 4.1% in June 2014.

Some analysts wrote up the minimal 0.2% rise in retail sales as proof the consumer has been "unshaken" by the recent turmoil, according to Lindsey Piegza, Stifel Fixed Income chief economist in a note to investors. She disagreed.

“We see this ... as proof the consumer remains under significant pressure without income growth, and rising uncertainty in the global marketplace. After all, with gasoline prices taking another nose dive this month, averaging $2.64 a gallon in August relative to $2.79 in July, the consumer should have been spending gangbusters this month, if not for the past year!”

She said a tepid consumer adds additional talking points for doves at this week's Federal Reserve Open Market Committee meeting.

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"One of the last key data points before the committee’s rate decision on Thursday, evidence of a lackluster consumer, undermines the hawks' version of the economy, which suggests a robust labor market is spurring strong consumption,” Piegaz said. “While a more favorable version of the story, the evidence suggests the contrary: labor market improvement remains insufficient to spark wage pressures, keeping the consumer treading water and shifting the goods and services in their basket rather than spurring spending increases across all categories."

She noted while spending is still positive, the declining momentum trend is a general theme for the U.S. economy at this point, with activity waning in nearly every sector from manufacturing to consumer spending to exports and production to inflation.

“With the Fed eagerly awaiting a sign or signs the economy is strong enough to withstand a rising rate environment, the data suggests the Fed will continue to wait for some time,” Piegza said.

Manufacturing Numbers

A separate report from the Federal Reserve shows the total output at the nation’s factories, mines and utilities fell 0.4% in August from the month before after increasing 0.9% in July.

The increase in July is now estimated to be greater than originally reported last month, largely as a result of upward revisions for mining and utilities, according to the Fed.

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Manufacturing output fell 0.5% in August primarily because of a large drop in motor vehicles and parts that reversed a substantial portion of its jump in July. Production elsewhere in manufacturing was unchanged.

The index for mining fell 0.6% in August, while the index for utilities rose 0.6%.

At 107.1% of its 2012 average, total industrial production in August was 0.9% above its year-earlier level. Capacity utilization for the industrial sector fell 0.4 of a percentage point in August to 77.6%, a rate that is 2.5 percentage points below its 1972–2014 average.

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