Re­tail sales, fac­to­ries take hits as Har­vey fall­out clouds U.S. econ­omy

Windsor Star - - FINANCIAL POST - SHOBHANA CHANDRA

WASH­ING­TON Hur­ri­cane Har­vey is tak­ing a swipe at the U.S. econ­omy this quar­ter, though not all of the slow­down can be blamed on the storm.

Three re­ports on Friday put the im­pact of the Texas flood­ing into fo­cus: Re­tail sales fell last month, ac­cord­ing to the Com­merce Depart­ment; Har­vey pushed down fac­tory pro­duc­tion in Au­gust, the Fed­eral Re­serve said; and con­cern about the eco­nomic and in­fla­tion­ary ef­fects of Har­vey and hur­ri­cane Irma led con­sumer sen­ti­ment to fall in Septem­ber, a Univer­sity of Michi­gan sur­vey showed.

The fall­out from the storms will take some mo­men­tum off thirdquar­ter growth and then prob­a­bly boost ac­tiv­ity later this year and into 2018, when re­build­ing ef­forts are un­der­way. The swings will make it tougher to gauge the un­der­ly­ing health of the econ­omy for sev­eral months, though an­a­lysts ex­pect steady hir­ing and health­ier fi­nances will sus­tain growth, al­beit at a slower pace.

“The third quar­ter is go­ing to look very soft, and most of that will re­flect the near-term im­pact of the storms,” said Richard Moody, chief econ­o­mist at Re­gions Fi­nan­cial Corp. in Birm­ing­ham, Ala. While not all of the weak­ness in de­mand was re­lated to Har­vey, “it doesn’t mean the con­sumer fun­da­men­tals have sud­denly de­te­ri­o­rated.”

The At­lanta Fed’s GDPNow track­ing es­ti­mate of third-quar­ter growth eased to a 2.2 per cent an­nual rate from three per cent a week ago, while econ­o­mists at Bar­clays Plc re­duced their track­ing pro­jec­tion to two per cent from the pre­vi­ous day’s 2.6 per cent. Michael Englund, chief econ­o­mist at Ac­tion Eco­nomics LLC, cut his gross do­mes­tic prod­uct forecast to 2.6 per cent from three per cent, while rais­ing it for the Oc­to­berDe­cem­ber pe­riod to three per cent from 2.8 per cent.

The econ­omy grew at a three­per-cent an­nu­al­ized rate last quar­ter, the fastest in two years. Con­sumer spend­ing, the big­gest part of the econ­omy, may now be hard pressed to match the 3.3 per cent gain of the sec­ond quar­ter.

Weaker re­sults at auto deal­er­ships played a big role in the pull­back in re­tail sales, partly re­flect­ing the hur­ri­cane im­pact and also the on­go­ing slow­down in the in­dus­try. Pur­chases at ve­hi­cles and parts deal­ers dropped 1.6 per cent in Au­gust af­ter no change in July. Over­all, only five of 13 ma­jor re­tail cat­e­gories showed a de­cline last month, while fur­ni­ture outlets and restau­rants posted sales gains.

Sales at non­store re­tail­ers fell 1.1 per cent in Au­gust fol­low­ing an up­wardly re­vised 1.8 per cent gain. Some of that may have been pay­back af­ter in­ter­net-driven pur­chases got a boost in July from Ama­zon.com Inc.’s Prime Day event. This, rather than the storm im­pact, may be “a more plau­si­ble al­ibi” for the sales set­back, Michael Feroli, chief U.S. econ­o­mist at JPMor­gan Chase & Co. in New York, said in a note.

“Rather than comb the data for ap­par­ent anom­alies it may be fairer to say that af­ter a very strong Q2 con­sumers are tak­ing a bit of a breather this quar­ter,” Feroli wrote.

The Com­merce Depart­ment said in a spe­cial no­tice that it couldn’t iso­late the ef­fect of hur­ri­cane Har­vey on the data be­cause it tracks ac­tiv­ity on a na­tional scale. The Fed, on the other hand, is­sued a note say­ing it made some as­sump­tions about out­put in af­fected areas when ac­tual data weren’t avail­able, us­ing pro­ce­dures sim­i­lar to pre­vi­ous ma­jor weather events.

Fac­tory out­put wa­vered in Au­gust af­ter Har­vey slammed into the na­tion’s en­ergy heart­land. The de­cline was the largest since May and re­flected a 0.9 per cent slump in the pro­duc­tion of non-durable goods in­clud­ing chem­i­cals and pe­tro­leum, the worst since Jan­uary 2014.

Even so, the steady pace of un­der­ly­ing de­mand in the U.S., com­bined with im­prov­ing over­seas mar­kets, bodes well for the man­u­fac­tur­ing out­look. The New York Fed’s so­called Empire State in­dex on Friday showed fac­tory ac­tiv­ity in that area con­tin­ued to ex­pand strongly in Septem­ber af­ter reach­ing an al­most three-year high last month.

TED S. WAR­REN/AP

U.S. re­tail sales fell last month in the wake of Har­vey. The fall­out from the storms is forecast to take some mo­men­tum off third-quar­ter growth be­fore likely boost­ing ac­tiv­ity later this year and into 2018.

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