Not very much is hap­pen­ing with the econ­omy

Daily Local News (West Chester, PA) - - MARKETPLACE - Joel Naroff Colum­nist Joel L. Naroff is pres­i­dent and chief econ­o­mist of Naroff Eco­nomic Ad­vi­sors. He can be reached at 215-497-9050 or joel@narof­fe­co­nomics. com. On the Web: www. narof­fe­co­nomics.com

INDI­CA­TOR: >> Au­gust Re­tail Sales, In­dus­trial Pro­duc­tion, Pro­ducer Prices and Weekly Job­less Claims KEY DATA: >> Re­tail Sales: -0.3 per­cent; Ex­clud­ing Ve­hi­cles: -0.1 per­cent/ IP: -0.4 per­cent; Man­u­fac­tur­ing: -0.4 per­cent/ PPI: 0 per­cent; Ex­clud­ing En­ergy: 0 per­cent/ Claims: +1,000

IN A NUT­SHELL: >> “If the data say no, can the Fed re­ally go?”

WHAT IT MEANS: >> If you have missed my eco­nomic mis­sives, it was be­cause of the dearth of in­for­ma­tion. Well, Thurs­day, the eco­nomic data mills re­leased a ton of num­bers and they all seemed to say the same thing: Not much is hap­pen­ing in the econ­omy. Au­gust re­tail sales were pretty soft, but we knew that would be the case from the de­cline in ve­hi­cle sales. How­ever, even ex­clud­ing ve­hi­cles, sales were down. Peo­ple did eat a lot, both at home and in restau­rants, and back-toschool cloth­ing sales were good. But that was about it, as al­most ev­ery other ma­jor cat­e­gory was ei­ther flat or down. Electronics and ap­pli­ances did eke out a small gain.

With house­holds not buy­ing, man­u­fac­tur­ers stopped pro­duc­ing. In­dus­trial pro­duc­tion fell in Au­gust as man­u­fac­tur­ing out­put de­clined. Eight of the eleven durable goods pro­duc­ing in­dus­tries and seven of the nine non­durable com­po­nents were ei­ther flat or down. Why there was such a ma­jor re­trench­ment is strange in that the num­bers looked like some­thing we would get when the econ­omy was in a ma­jor down­turn. You know some­thing is weird when the strong­est sec­tor was oil and gas pro­duc­tion.

If the Fed mem­bers were hop­ing to see in­fla­tion pres­sures start­ing to build, their wishes were not granted. The in­fla­tion ge­nie is still in the bot­tle as the Pro­ducer Price In­dex was flat in Au­gust. En­ergy prices fell sharply, but even ex­clud­ing en­ergy, whole­sale costs went nowhere. About the only pos­i­tive as­pect of this re­port, at least for the Fed, was that goods in­fla­tion has fi­nally flat­lined. With ser­vices costs ris­ing, whole­sale prices could in­crease, year-over-year, go­ing for­ward. And as far as the pipe­line is con­cerned, in­ter­me­di­ate level, non-food and en­ergy costs are firm­ing. That hints at slowly ris­ing in­fla­tion as well.

The one truly pos­i­tive num­ber re­leased to­day was un­em­ploy­ment claims. They rose min­i­mally and the level re­mains near record lows, when ad­justed for the la­bor force. The la­bor mar­ket is tight and firms are just not cut­ting staff.

MAR­KETS AND FED POL­ICY IM­PLI­CA­TIONS: >> We will find out next week if the Fed is re­ally data de­pen­dent as the re­cent num­bers hardly ar­gue for a rate hike. Va­ca­tions and a hot Au­gust may have de­pressed ac­tiv­ity, some­thing we will not know un­til the Septem­ber num­bers are re­leased. Of course, those re­ports will not be re­leased un­til after the meet­ing. The econ­omy is mov­ing for­ward at the pace we have seen for the past few years.

The string of roughly 1 per­cent growth rates should be bro­ken this quar­ter, but that would just start bring­ing us back to 2 per­cent, which most econ­o­mists think is un­der­ly­ing the growth rate. The re­cent dis­ap­point­ing data places the Fed in a dif­fi­cult po­si­tion.

If the FOMC raises rates, then it would give lie to the ar­gu­ment that the Fed is data de­pen­dent. If the Fed is data de­pen­dent, then the next time a hike would likely come is De­cem­ber, since the Novem­ber meet­ing ends six days be­fore the elec­tion. It looks like the Fed will have missed an­other op­por­tu­nity to start the nor­mal­iza­tion process be­cause the “data de­pen­dent” ar­gu­ment has placed the mem­bers in an un­ten­able po­si­tion.

Maybe they should just drop the phrase. It’s dumb, as the data are so volatile, and weak num­bers box in the mem­bers. With strong data, the Fed doesn’t need an ex­pla­na­tion, as the mar­kets will be ex­pect­ing, if not de­mand­ing a move.

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