The Market Today

TODAY’S ECONOMIC DATA

September Economic and Interest Rate Projections, and Bloomberg Survey of Economists

 

Retail Sales Remain Stronger Than Expected in August:  Retail sales beat expectations rising 0.7% MoM in August.  Taking into account a weaker revision to the July sales total, overall sales beat economists expectations by 0.7%.  As expected, auto sales (and parts) tanked another 3.6% MoM after falling 4.6% in July.  Auto sales are now down 14% since April.  Excluding autos and gasoline, sales rose an even more encouraging 2.0% MoM.  There were large swings in activity by sector: online sales +5.3%, furniture and home furnishing sales +3.7%, general merchandise sales +3.5%, sporting goods/hobby/books/music -2.7%, and electronics and appliances sales -3.1%.  On a non-seasonally adjusted basis, sales fell 0.7% MoM but have remained elevated after the March stimulus-assisted boost.  Core sales rose 1.8% MoM in August on a non-seasonally adjusted basis.  On a negative note, retail sales are reported on a nominal basis and higher consumer prices are having a larger impact on real activity.  Additionally, it will be difficult to replicate the 11.8% QoQ, SAAR jump in personal consumption seen in 2Q21.

Noisy Claims Data Cloud Signal, but Trend Remains Positive: Initial jobless claims for the week ending September 11 rose from 312k to 332k during the holiday-affected week. With Hurricane Ida affecting the September 4 data and the Labor Day holiday creating additional volatility for the September 11 data, the four-week average helps look through the noise.  The average fell to 335k, its lowest level since March 2020.  On a non-seasonally adjusted basis, claims fell 23k to 263k, their lowest level of the pandemic, as 38 states reported improvement.

Traditional Continuing Claims Also Show Broad Improvement: Continuing jobless claims for the week ending September 4 plunged 187k to 2.67mm as 44 states reported decreases.  CA accounted for a large portion of the headline improvement but also reporting large decreases were GA, MA, IL, FL, and MI. In contrast to the improvement in the traditional programs, pandemic-related continuing claims increased as they approved their expiration.  Continuing PUA claims jumped 397k for the week ending August 28 while continuing PEUC claims declined 213k.

Philadelphia Fed Index Jumps in September: Like the New York Fed’s regional report released earlier this week, the Philadelphia Fed’s report on manufacturing activity in September blew out expectations, jumping from 19.4 to 30.7. The details of the report show the supply chain challenges easing a bit with the shipments index rising 11 points, the delivery times index declining 6 points, and the prices paid index declining 4 points.  The biggest change came from the inventories index which jumped from -18.1 to +19.2, again indicating some possible improvement in the supply chain.

Business Inventories: The July Business Inventories report (9:00 a.m. CT) is expected to show inventories up another 0.5%.

YESTERDAY’S ECONOMIC NEWS

Industrial and Manufacturing Output Both Rose Despite Impact from Hurricane Ida: Industrial production rose 0.4% in August, short of the 0.5% gain expected, and manufacturing output improved 0.2%, half of the 0.4% increase economists forecasted. However, the Fed noted that Hurricane Ida impacted both measures. “Late-month shutdowns related to Hurricane Ida held down the gain in industrial production by an estimated 0.3 percentage point,” the Fed’s release noted, and the storm “forced plant closures for petrochemicals, plastic resins, and petroleum refining” that shaved 0.2% off of manufacturing output. Through two months, manufacturing output is tracking for a 7.1% annualized gain in 3Q21 and the index is now 1.0% higher than its pre-pandemic level. Of interest, production of motor vehicles and parts inched up less than 0.1% after a 9.5% gain in July. Elsewhere in the report, storm disruptions of the oil industry led to a 0.6% decline in mining while a 3.3% gain in utilities was attributed to above-average temperatures across much of the country.

TRADING ACTIVITY

Treasury Yields Reversed Small Portion of Tuesday Drop as Stocks Rose Wednesday on Broad, Energy-Led Gains: A reversal of fortunes on Wall Street Wednesday drove equities higher and partially pared Tuesday’s drop for Treasury yields that was fueled by a softer-than-anticipated CPI report for August. Futures had been lethargic overnight, weighed down by losses across Asia and Europe that accumulated following weaker-than-expected economic data from China. While the cautious tone helped keep a lid on metals prices Wednesday, the broader mood brightened throughout U.S. trading. The S&P 500 grinded gradually higher, ultimately closing up 0.9% and near session highs. Energy companies rose 3.8% to lead widespread gains across almost every sector. Oil prices jumped by more than 3%, with U.S. WTI narrowing the gap with Brent after a report showed U.S. crude inventories fell to their lowest level since September 2019. According to Bloomberg, only 60% of gulf production shut out by Hurricane Ida three weeks ago has returned. With equities clawing back lost ground, Treasury yields recovered a portion of the prior day’s descent. The 10-year yield closed up 1.5 bps at 1.30%, with momentum picking up after the Empire Manufacturing Index showed activity recovered strongly in September and as oil rallied to its daily highs. The benchmark yield peaked at 1.32% around lunch.

U.S. equity futures held close to their opening levels overnight amid mixed global trading in which European indexes strengthened despite another day of declines across Asia. The mixed signals initially drove Treasury yields lower before the curve climbed back during the stronger European session. Prior to the release of the weekly U.S. jobless claims data and the latest retail sales report, S&P futures were down 0.2% while the 10-year Treasury yield had added 0.8 bps to 1.31%. Following another morning of encouraging economic data, the 10-year yield climbed to session highs, up 3.6 bps at 7:35 a.m. CT to 1.34%.

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The Push for Boosters: Moderna issued a press release Wednesday discussing trial data which shows immunity provided by its vaccine may wane over time. In the study of participants in its late-stage trial last year, the company found a 50% greater occurrence of breakthrough cases in a group that was vaccinated in the middle of last year than in those who received their shots around December. “This adds to evidence of potential benefit of a booster dose,” the company said. Similarly, Pfizer noted in a presentation on boosters it plans to make to an FDA advisory panel that, “Real-world data from Israel and the United States suggest that rates of breakthrough infections are rising faster in individuals who were vaccinated earlier.” The White House said the booster program will begin on September 20^th if approved by drug regulators.

Other Vaccine News: In other vaccine-related news, reports indicated roughly 88% of active duty military have been vaccinated. Southwest Airlines said it will offer an extra 16 hours of pay for employees that get a vaccine while Raytheon Technologies said all U.S. employees must be vaccinated by January 1.