September Retail Sales Today but Market Fixated on Inflation Implications

After September’s CPI numbers last Wednesday the last major economic release this week is this morning’s Retail Sales Report. Recall that the August report surprised to the upside when expectations were that rising virus cases would dent sales. That wasn’t the case but with downward revisions to July making month-over-month comparisons easier, some of the shine was taken off the report. The fact too that the numbers are not inflation-adjusted also aided the overall numbers as well. That being the said, September sales are expected to be solid but with not quite the pop we saw in August.

The market is likely to take the report in stride as it remains more fixated on inflation trends and what that means for how quickly we get to a rate hike following QE tapering. Fed funds futures have fluctuated of late but the betting is centering around a September to November 2022 lift-off. The budding concern in some quarters is that inflation will be more persistent than transitory leaving the Fed to hike quicker than currently anticipated and that in turn slows the economy. That’s why you are seeing some bullish flattening on the long-end of the curve lately, penciling in a slower growth forecast while the short-end prepares for a hike at some point in 2022.

In our podcast this week we are bringing back one of our favorites—Jack Hubbard of St. Meyer & Hubbard. Jack has trained over 70,000 bankers in his lifetime and his content can be seen in The American Banker, RMA Journal, plus many others.  The iTunes link can be found here and the Spotify here.

Continuing Jobless Claims Slowly Approaching Pre-Pandemic Levels

Despite a weaker-than–expected September jobs report, the weekly jobless claims numbers continue to move in the right direction, and that is lower. Initial jobless claims in regular state programs fell by a more-the-expected 36,000 to 293,000 claims in the week ended October 9. That was the lowest weekly total since March 2020. Continuing claims, which lag initial claims by one week, declined from 2.73 million to 2.59 million for October 2. That too was the lowest since March 2020 and is approaching levels we typically saw pre-pandemic.


Source: Bloomberg

Looking at the emergency program claims, the numbers are starting to drop dramatically reflecting the expiration of those programs in early September. Continuing Pandemic Unemployment Assistance dropped to 549,000 during the week ending September 25 from 648,000 the prior week. The aggregate of the two emergency programs and state-level claims fell to 3.7 million people with the bulk of those in the traditional state program. Recall, these aggregate claims numbers were over 12 million a month ago.

That steep falloff from a month ago implies more than eight million people who were receiving some form of unemployment insurance last month are not right now. Considering the latest Job Openings and Labor Turnover Survey reported over 10 million job openings, it would seem employers should start to see additional applicants arriving in short order. To date, that hasn’t been the case but stay tuned, as they say, for further developments.

Consumer Confidence Due for a Rebound?

Part of the concern about the consumer heading into the September retail sales numbers was the drop in confidence as shown in both the Conference Board’s Consumer Confidence measure and especially the decade-low print in the University of Michigan’s Sentiment Index for August. Later this morning the October University of Michigan Sentiment will be released with expectations of a small bounce from 72.8 to 73.0.  While that could be two straight months of increasing confidence it’s well off the 2021 high of 88.3 back in April.

Source: Bloomberg

It’s somewhat surprising that with delta variant cases receding across most of the country, confidence readings continue to struggle. Certainly when cases were surging in July and August sagging confidence measures made some sense. Despite the dip in confidence in August, consumers didn’t slow much in spending as August Retail Sales surprised to the upside but some of that came from downward revisions in July making the month-over-month comparisons easier.

Also, the retail sales series is more heavily weighted towards goods purchases and those obviously held up better in August than perhaps the more service-oriented categories. Again, with virus cases receding one would expect to see the service-side of the economy shoulder more of the load as previously skittish consumers head back out.   Ultimately, however, the confidence measures will have to turn north if a lasting and broad increase in spending is to be expected.

Agency Indications — FNMA / FHLMC Callable Rates

Maturity (yrs) 2 Year 3 Year 4 Year 5 Year 10 Year 15 Year
0.25 0.25 0.58 0.88 1.23 1.95 2.41
0.50 0.24 0.55 0.82 1.11 1.81 2.30
1.00 0.23 0.52 0.78 1.07 1.72 2.17
2.00 0.51 0.73 0.99 1.60 NA
3.00 0.95 1.54 NA
4.00 1.49 NA
5.00 1.45 NA
10.00 NA

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Published: 10/14/21 Author: Thomas R. Fitzgerald