Here is a look at the latest retail disaster du jour as well as inflation.
Global Markets
August 31 (King World News) – Art Cashin, Head of Floor Operations at UBS: Overnight, global equity markets are somewhat varied, apparently reacting to different pieces of economic data.
In Asia, Japan closed up the equivalent of 200 points in the Dow, possibly responding to stronger than expected retail sales. Hong Kong was closed up about 130 points in the Dow, while Mainland China was down an equivalent 130 Dow points. India was off about 100 Dow points.
Over in Europe, as we go to press things are rather quiet as they are accessing what had happened in New York yesterday and where they want to go in front of the upcoming New York holiday. So, as we go to press the changes in London, Paris and Frankfurt are merely fractional and that could be subject to change as we get closer to the New York opening.
Regarding the New York opening, as we go to press the Dow futures are up about 130 points and a huge chunk of that, perhaps 80 or 90 points, comes from the Dow component Sales Force, which is providing the bulk of the rally.
Otherwise the key thing will remain where the yields go, do we go back to challenge the previous resistance or do they remain relatively low and support the equity Bulls.
The calendar is fairly light. We have initial claims and the Feds favorite inflation gauge and a couple of Fed speakers.
For now you know the current drill, given the Geopolitical uncertainty. Remain close to the newsticker, keep your seatbelt fastened, stay nimble and alert and above all keep an eagle’s eye on those yields. Otherwise stay safe and get ready for the holiday weekend.
Retail Disaster And Inflation
Peter Boockvar: The PCE inflation data for August was as expected and because it comes weeks after CPI and PPI, usually doesn’t deviate much from forecasts. Both headline and core were up .2% m/o/m and the headline y/o/y increase was 3.3% vs 3% in July and the core rate was up by 4.2% vs 4.1% in July. Again, the PCE overweights healthcare relative to CPI while underweighting housing. No change today in the 5 yr inflation breakeven with the data in line with what was forecasted.
Goods prices fell .5% y/o/y but completely offset and then some by a 5.2% rise in services. Food prices were up by 3.5% y/o/y while energy prices dropped by almost 15% y/o/y. Once we recycle the energy price declines, the recent rise will see an upward inflection. The rent slowdown will eventually show up but within CPI, health insurance prices are about to shift higher again. PCE relies almost solely on medicare and medicaid reimbursement rates and thus is price fixed at low levels
The August income and spending numbers were a touch better than expected but with the latter rising more than the former, the savings rate plunged to just 3.5% from 4.3% in June and 4.7% in May. That’s the lowest since last October and for perspective, the savings rate for the 20 yrs leading into Covid was 6%.
Bottom Line
Bottom line on the US consumer, if read/heard like me the earnings calls over the past few weeks and we now have a savings rate that is down to just 3.5%, we must be concerned with the state of US consumer spending and behavior.
Retail disaster du jour
More evidence of this, Dollar General is the retail disaster du jour. They saw a very slight drop in comps, .1% y/o/y “driven by a decline in customer traffic, partially offset by an increase in average transaction amount. Same store sales in the 2nd quarter of 2023 included declines in each of the home, seasonal, and apparel categories, partially offset by growth in the consumables category.” That assortment breakdown is pretty much what we’ve heard from everybody.
Initial jobless claims totaled 228k, 7k less than expected and vs 232k last week (revised up by 2k). The 4 week average did tick up a hair to 238k from 237k because a 227k printed dropped out. This data, while stair stepping up, still reflects a modest pace of firings but the stair step and trajectory can’t be ignored (see Challenger data below).
To the slowing hiring situation, continuing claims rose to 1.725mm from just under 1.7mm and that is the most since the first week of July.
We also saw this morning the August Challenger job cut report which included about 30k from the Yellow bankruptcy. Challenger said, “So far this year, companies have announced plans to cut 557,057 jobs, a 210% increase from the 179,506 cuts announced in the same period last year.” That’s the 3rd highest year to date total since 2009 but of course includes Covid.
They said “Job openings are falling, and American workers are more reluctant to leave their positions right now. The job market is resetting after the pandemic and post pandemic hiring frenzy.”
Also of note, “In August, employers announced plans to hire 7,744 workers, the lowest monthly total since November 2020, when 6,527 new positions were announced.”
Bottom Line
An overall bottom line, I keep hearing from some about the strength in the US economy but outside of upper income spending on leisure and hospitality, residential home building (but of course not existing home transactions) and government induced spending on manufacturing construction, I’m struggling to find it as much as I want to see it.
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