By Kevin Kastner
WASHINGTON (MaceNews) – A surprise jump in September retail sales, led by a surge in motor vehicle sales, was a blip in what appears to be a continued slowing trend in sales growth.
October retail sales should rise only modestly when released next Tuesday following an outsized 1.9% jump in September. While vehicle sales should post another solid increase based on the already-released industry data, the outsized increases seen in other categories in September will not be repeated.
Those gains in clothing store sales, sporting goods, department store sales, and gasoline station sales provided the perfect storm for September’s increase and will be the key reasons for a slowdown in October.
There is an upside risk from extraordinarily strong online sales due to Amazon Prime week.
Gasoline pump prices fell further in October due to reduced driving, while reduced spending on school items such as clothing and sporting goods will drag down those categories in the coming month.
In addition, there was another solid gain in restaurant sales and a flat reading for grocery store sales in September. Look for the opposite in the October data, as surging COVID-19 and cooler weather will encourage more eating at home.
Released after retail sales on Tuesday, September business inventories are on track to rise by 0.6% pending a revision to the 1.6% gain in retail inventories from the advance reading. Wholesale inventories rose by 0.4%, while factory inventories were flat.
Based on data already released, business sales are on track to rise by 0.8%. Retail trade sales were up 1.9% in September but are subject to revision with the retail sales release. Wholesale sales rose by 0.1%, while factory shipments were up 0.3%.
US Inventories and Sales to Date
Source: US Commerce Department
MANUFACTURING RECOVERY CONTINUES, COVID LURKING
The manufacturing data released last month pointed to continued improvement in October with the national ISM index reaching 59.3 in the month to follow gains in nearly all the regional measures.
The upcoming week’s data includes the first look at November regional conditions, which are unlikely to be as unanimous in their optimistic assessments as they were in October due to a resurgence of COVID-19 cases.
The Empire State reading pulled back in October after a September surge, but the Philadelphia Fed’s reading more than doubled to indicate sharp acceleration.
After keeping COVID cases under control through most of the summer, even the Northeast is experiencing a sharp rebound. That should negatively impact the readings in both of those regions.
In addition, the Kansas City Fed bank will release its manufacturing and services readings later in the week. Both rose in October and are expected to suffer the same fate as the Northeast, with slower, but still positive, growth in November.
The Federal Reserve’s industrial production data to be released on Tuesday are expected to rebound in October after a utilities-led drop in September. That decrease was due to a sharper-than-normal decline in air conditioner usage. Electricity use should be more in line with the usual pattern in October and may even be higher due to people working and learning from home.
Manufacturing production should also rebound, as vehicle production likely recovered after two straight declines. In addition, other manufacturing production categories have been solid since the spring until a flat September reading.
Mining production will continue to be impacted by weather events, but the weekly rig data suggest the number of facilities has remained roughly steady in recent weeks after contraction over much of the year.
HOUSING REMAINS BRISK EVEN AS COVID CASES ACCELERATE
Record low mortgage rates continue to add fuel to the housing market, with strong data on home building and existing home sales due for release this week.
The desire of homeowners for larger houses has pushed up both, as homeowners trade up to new homes and put their current homes for sale. Those existing homes are quickly snatched up, often by first-time buyers.
The one downside to this hot market is continued spikes in prices, well beyond the pace of wage growth. The level of prices has kept some potential buyers out of the market. If supply can be ramped up even further to offset the sharp demand and reduce prices, the pace of sales should continue to find new cyclical highs.
The NAHB’s October builders’ confidence reading hit another record high when it was released last month. Data for November will be released on Tuesday ahead of Wednesday’s October housing starts and permits release, which is expected to show further increases after rising in September.
Existing home sales surged to a 6.54 million annual rate in September, the highest since the housing boom. While the pace of existing home sales will remain well ahead of its year ago pace, it may slip from that September rate when the October data are released on Thursday.
The NAR’s pending home sales data fell by 2.2% in September. The data is meant to foreshadow existing home sales by tracking preliminary contracts, most of which translate into sales in the following month.
JOBLESS CLAIMS GROWTH CONTINUES TO SLOW AS BENEFITS DISAPPEAR
The level of initial claims fell by 48,000 to 709,000 in the November 7 week, continuing the modest improvement seen over the last several months. The level of new claims could rebound in the November 14 employment survey week, but the four-week average is likely to fall for the 16th straight week. A 797,000 level in the October 17 survey week rolls out of the equation this week.
Continuing claims fell by 436,000 to 6.786 million in the October 31 week. As with initial claims, the level of continuing claims should continue to decline in future weeks.
Much of this improvement is due to an expiration of benefits, which may not be remedied anytime soon with a lame-duck administration and a divided Congress in place until January.
Here are the key data events for the coming week (U.S. Eastern Time):
MONDAY, NOV. 16
8:30 am Empire State Index (Nov)
TUESDAY, NOV. 17
8:30 am Retail sales (Oct)
8:30 am Import price index (Oct)
8:55 am Redbook Same Store Sales (Nov 14 Week)
9:15 am Industrial production (Oct)
10:00 am Business inventories (Sept)
10:00 am NAHB Home builders index (Nov)
4:00 pm TICS (Sept)
WEDNESDAY, NOV. 18
7:00 am Mortgage Bankers weekly applications (Nov 13 Week)
8:30 am Housing starts (Oct)
THURSDAY, NOV. 19
8:30 am Initial Jobless Claims (Nov 14 week)
8:30 am Philadelphia Fed Manufacturing index (Nov)
10:00 am Existing home sales (Oct)
10:00 am Index of leading economic indicators (Oct)
10:00 am Advance Services (Q3)
11:00 am Kansas City Fed Manufacturing Index (Nov)
FRIDAY, NOV. 20
10:00 am State Unemployment (Oct)
11:00 am Kansas City Fed Services Index (Nov)
1:00 pm Baker-Hughes Rig Count (Nov 20 week)
Separately, from Extract Analytics, the outlook for the SPX is for muted performance, at least for the next two to three weeks:
Contact this reporter: kevin@macenews.com.
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