Just a day ahead of the start of the FOMC meeting, we have fresh data showing a slightly mixed picture of the US economy.
By Peter Martin
Tuesday, September 15, 2015
On a positive note, there is evidence of healthy consumer activity in the third quarter. Retail sales grew 0.2% in August, while July was revised up to +0.7% from the originally-reported +0.6%. Stripping out the more volatile components of autos and gas, shows 0.3% growth (following on from July’s +0.7%. revised up sharply from +0.4%). While the August results are more solid than outstanding, the fact that they show this growth after such steep gains in July points to healthy consumer spending and some real momentum in the third quarter, posing a difficult challenge to the Fed of whether to focus solely on domestic health in their decision or to take in the wider picture of global slowing. Of course the two aren’t completely unconnected issues and last Friday’s reports of consumer sentiment showed a sharp decline for early September, suggesting consumer expectations have been dented by the recent China-led stock market turbulence.
Other data released this morning was less positive. US industrial production fell 0.4% in August, with a 0.5% fall in the manufacturing component, though there were upward revisions for July. The decline in manufacturing was down to the auto sector, and excluding this area of production, manufacturing was flat. The hard data contained in this report was presaged by some weakness in the anecdotal evidence of the Fed’s regional surveys, particularly the New York area, and unfortunately September is telling a similar story there. The Empire State manufacturing survey was a woefully low level of -14.92 in August and it’s little changed for this month at -14.67, hugely undershooting expectations. August was the lowest reading since the financial crisis and September is now the second lowest. With the forward-looking component of new orders at a lowly -12.91, for a fourth successive month in negative territory, things are not looking very good for a quick bounce back either.
The stock market response to the morning’s data was muted, however. Such behaviour is not uncommon ahead of FOMC meetings, as the uncertainty tends to lend constraint to market moves. Shortly after the opening bell in New York, prices were slightly higher, with the Dow Jones gaining 33 points or 0.20% to 16,404 and the S&P 500 rising the same percentage to 1957.0.
Caution ahead of the Fed meeting is also swaying the forex market, boosting the safe-haven Japanese yen. USD/JPY fell 0.35% to 119.81. Minutes released last night by the Reserve Bank of Australia indicated concern amongst the central bank’s officials regarding developments in China, citing ‘a downside risk to the overall outlook for growth in China over the coming year’. The Aussie dollar fell sharply following the publication of the minutes, before continuing to sink. By 10.00 ET AUD/USD was down 0.3% at 0.7116. The currency pair had been trading around 0.7150 before the release of the minutes.
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