U.S. Data Misses May Not Change The Game
Ashraf Laidi | Sep 15, 2015 02:39PM ET
A trifecta of misses in Tuesday's U.S. economic releases may not be a game-changer in Thursday's Fed decision because the game is already “unchanged”. The September Empire Fed survey posted another double-digit decline to remain at 6-year lows while August retail sales rose 0.3% to miss expectations for the sixth consecutive month and industrial production fell 0.4% in August to post seven declines over the past eight months -- the worst pattern since 2008-9.
On the bright side, core retail sales (excluding autos, gas and building materials), rose along upward revisions to the prior two months. In the Fed's Empire survey, the employment component turned negative to 6.2 from 1.8, as did the average workweek, which plunged 10.3 from -1.8. U.S. industrial production was battered by the usual strong U.S. dollar story and weak exports. Manufacturing dropped 0.5%, mining fell 0.6% and utilities were up 0.6%.
h2 Bearish Argument/h2The bearish side may argue against the robust retail sales by indicating the report was too early to take into consideration the slump in equities, materializing in the 2nd half of the month. The argument becomes especially potent following Friday's release of the preliminary report of the September University of Michigan Sentiment Survey, showing the biggest one-month plunge since late 2012. Thus, the release of U.S. September retail sales, due in mid-October (2 weeks before the FOMC) could potentially disappoint.
h2 Bullish Argument/h2A more optimistic interpretation of the figures could point to the fact that the gloomy surveys in the chart above focus on manufacturing, which has been pummelled by the disinflationary challenges of a strengthening U.S. dollar and the eroding global supply change. Manufacturing is not the only contributing factor for shrinking part of the overall U.S. economy as inflation is more positive in the services sector.
That leaves us with Wednesday's release of U.S. August CPI and Thursday's September Philly Fed survey as the final data points prior to the Fed's decision. Fed watchers are already hedging themselves in their prediction for the big event, indicating a hawkish statement/forecast accompanying an unchanged announcement on rates, while others predict a dovish statement/forecast to accompany a rate hike. While we lean toward no change this week, markets have already made up their mind in pursuing further downside for the month.
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