The market saw some big pieces of data this week, with CPI, PPI and Retail Sales, along with Fed Chairman Powell speaking and answering questions for two days this week. Powell was consistent that for the near term the Fed is on hold as long as the economy stays consistent. Trade talks between the U.S. and China have hit a snag which has helped bond yields move lower this week.
CPI for October came in above expectations on a headline basis at 0.4% MoM versus 0.3% consensus, a nice rebound from 0.0% in September. Core CPI was in-line with the forecasts at 0.2%, a slight up-tick from 0.1% last month. Note that on an unrounded basis, both headline and core were rather close to rounding down, coming in at 0.356% and 0.157%, respectively. Within the details, owner’s equivalent rent of residences (OER) decelerated slightly to 0.2% MoM from 0.3% prior, while motor vehicle prices partially rebounded from last month's volatility.
PPI (Product Price Index) for October came in above expectations at +.4% vs. +.3%, primarily off a final demand trade rise of +.8%. The trade component is volatile to begin with, and as long as tariffs are in the conversation, market expectations are for the volatility to continue on headline inflation. Looking at core prices, which strip out food and energy, we see a rise of +.3% vs. consensus of +.2%. YoY, both headline and core are now running at +1.1% and +1.5%, respectively. Overall, the results are mixed and don’t do much to challenge the fact that inflation continues to run well below the 2% mandate by the Fed. September’s results (-.3% on both headline and core) were definitely a surprise and the largest drop since 2015, but given the sharp rebound in October here, it’s obvious that any volatile weakness seen in September was short-lived.
Retail sales for October were somewhat mixed – headline came in at 0.3% MoM, just above the 0.2% forecast, and offsetting the -0.3% decline observed in September. That said, the unrounded figure of 0.26% means even this beat is nothing to write home about. The control group came in at a consensus 0.3%, though with some slight downward revisions to last month (now -0.1% from 0.0% prior). Although the outright levels were certainly more encouraging than in September, it's worth noting that for both months less than half of the categories exhibited growth (6 in both instances).
Empire State Manufacturing
Empire State Manufacturing index for November fell to 2.9 from 4.0, missing forecasts of 5.0. After two months at 3.5, the new orders index edged up 2.0 points to 5.5 in November. The shipments index, however, fell 4.2 points to 8.8, a level indicating that shipments grew more modestly than last month. Forward-looking indicators were mostly higher in November than in October. Components measuring expectations six months ahead showed general business conditions improving 2.3 points to 19.4, new orders adding 0.7-point to 24.2, and shipments gaining 5.5 points to 24.4 - all the best readings since August.