U.S. Retail Sales Rose in October Sales at stores and restaurants rose 0.8% after two months of declines, fueled largely by gains in automotive, gasoline and building-and-garden sales
(…) Retail sales for the prior two months were revised lower, to a 0.1% decline in both September and August from a previous estimate of a 0.1% increase in both months. Consumer spending was a major driver of third-quarter gross domestic product, though the revisions suggested spending might not have been as strong as first reported. (…)
Following the retail sales data, private forecasting firm Macroeconomic Advisers cut its estimate of third-quarter GDP growth to 3.4% and lowered its tracking forecast of fourth-quarter GDP growth to 2.5%. (…)
Excluding motor vehicles, sales were up 0.7% in October, and excluding gasoline, sales were up 0.5%. Excluding both categories, sales were up 0.3% last month. (…)
Fluctuations in gas prices can blur the picture. Sales ex-autos and gas stations were up 0.3% MoM, following 0.0% and 0.6% in the previous 2 months. This 3.7% annualized 3-m growth rate is weaker than the 4.7% YoY trend rate with most of the slowdown seen in furniture stores (weak housing market) and sporting goods.
Gasoline stations sales are up at a 19.4% annualized rate in the last 3 months (+16.2% YoY), absorbing a big slice of disposable income, but relief is happening now with gas prices almost back to their year ago level.
Restaurant sales were weak in the last 2 months (-10.4% saar), partly due to gas prices, but also to rising meal prices. (See UNAPPETIZING)
Given trends in income, taxes and inflation, a weak year-end at retail would be surprising.
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Retailers Slump as Market Volatility Spreads Strong third-quarter earnings didn’t prevent retail selloff, which signals larger anxieties about growth
Walmart Inc., Macy’s Inc. and Home Depot Inc.have suffered steep share-price losses this week, even after posting relatively robust results. Walmart reported a rise in quarterly sales and boosted its profit outlook for the year Thursday, but its shares slipped 2%, extending their losses for the week to 5.7%.
A day earlier, Macy’s fell 7.2% even after delivering healthy sales growth in its latest quarter and raising its guidance for the year. The department-store operator’s shares continued falling Thursday, sliding 2.9%. The stock is off 15% this week but still up 28% for the year.
Home Depot slipped 0.2% Tuesday after similarly upbeat results, but the home-improvement retailer’s shares are off 4.6% this week, including a 1.4% decline Thursday.
The downturn has extended to other retailers that are scheduled to report results next week. Target Corp. has shed 7.1% this week, while Kohl’s Corp. is off 11%.
Those declines have weighed on the S&P 500’s consumer-discretionary sector, which snapped a four-session losing streak Thursday but is down 10.2% since the start of October. Consumer-staples stocks slipped 0.3% Thursday, taking a hit from Walmart, while the broader S&P 500 climbed 1.1%. (…)
Some analysts said one reason retailers fell even as major indexes stabilized Thursday was that the October retail sales report and other recent strong data points could give the Federal Reserve a freer hand to continue gradually raising interest rates. (…)
Consumer discretionary stocks are down 9.6% from their Oct. 1 peak, fluctuating around their flattening 200dma. Of the 48 discretionary companies that have reported Q3 so far, 77% beat forecasts and their beat rate is a huge 14.3% even though revenues beat by only 0.6%. Big margins gains. CD companies’ earnings are expected to jump 24.9% in Q3 against +13.0% expected on Oct. 1. Their Q4 earnings are seen up 13.5%, down from 17.8% on Oct. 1, slowing to +3.4% in Q1’19.
Consumer Staples had a near-bear slide during the first half of the year, down 17.2% at one point before recovering 14.7% as investors went defensive.
Economic Outlook from Freight’s Perspective
(…) the Cass Freight Shipments Index is clearly signaling that the U.S. economy, at least for now, continues to be extraordinarily strong. Simply stated, when shipment volume is up 6.2%, it is the result of an expanding economy. (…) since the end of World War II (the period for which we have reliable data), there has never been an economic contraction without there first being a contraction in freight flows. Conversely, during the same period, there has never been an economic expansion without there first being an expansion in freight flows.
The Cass Expenditures Index is signaling continued strong pricing power for those in the marketplace who move freight. Demand is exceeding capacity in most modes of transportation by a significant amount. In turn, pricing power has erupted in those modes to levels that continue to spark overall inflationary concerns in the broader economy. With the Expenditures Index up 12.0%, we understand those concerns, but are comforted by two factors: the cost of fuel (and resulting fuel surcharge) is included in the Expenditures Index and the cost of diesel was up 20.9% in October; almost all modes of transportation are using the current environment of pricing power to create capacity. To the extent that pricing is materially exceeding the marginal cost of creating that capacity, market participants are investing heavily in the exact activities which kill pricing power in commodity markets (i.e., expansion of capacity with the belief that current pricing power will endure for an extended period of time).
As we explained in previous months, we do not fear long-term inflationary pressure as technology provides multiple ways to ever increase asset utilization and price discovery in all parts of the economy especially in transportation. In fact, we are continuing to see more signs that ELDs (Electronic Logging Devices), which initially hurt the capacity/utilization of truckers (especially small truckers), are becoming an ever-smaller impediment to capacity utilization. Many of the truckers which were the most adversely effected are now getting most, if not all, of the original loss in utilization back. This is especially true in the Dry Van and Reefer (temperature control) marketplaces of trucking. Even the Flatbed segment of trucking, which initially faced the greatest challenges with productivity after the adoption of ELDs, has begun to adapt.
(…) The current level of volume and pricing growth is signaling that the U.S. economy is growing, but that level of growth may have reached its short-term expansion limit. The 6.2% YoY increase in the October Cass Shipments Index is yet another data point confirming that the strength in the U.S. economy continues. This is a deceleration from the low double-digit levels achieved in the first five months of 2018, and even a slight deceleration from the 8.2% achieved last month. We are confident that the increased spending on equipment, technology, and people will eventually result in increased capacity in most transportation modes. That said, many modes are continuing to report “limited amounts of capacity” or even “no capacity” at any price shippers are willing to pay.
(…) That these percentage increases are still strong and strong against tough comparisons explains why our economic outlook continues to be bullish, why transportation capacity is constrained, and why realized pricing is so strong.
As we have discussed in previous reports, Dry Van trucking volume serves a similar role to container volume in predicting retail sales. When studied using the DAT Dry Van Barometer, a clear pattern of strong volume growth that exceeds capacity growth, which is driving pricing power, remains.
Bottom line – the DAT Dry Van Barometer is giving us real-time indications of stronger demand and tighter capacity in this key freight group. Indicating that the consumer economy is not only alive and well, but growing robustly.
In a similar fashion to the DAT Dry-Van Barometer, the DAT Flatbed Barometer is indicating that the U.S. Industrial economy is alive and well and accelerating. (…)
Trump and Xi Likely to Get Only Framework Trade Deal, Ross Says
The U.S. still plans to raise tariffs on Chinese imports in January with President Donald Trump and China’s Xi Jinping likely at best to agree to a “framework” for further talks to resolve trade tensions at an upcoming meeting, Commerce Secretary Wilbur Ross said. (…)
It can’t be expected that the two presidents will “get into intimate details — how much LNG and how much this and that. It’s going to be big picture, but if it goes well, it’ll set the framework for going forward,” Ross said. “We certainly won’t have a full formal deal by January. Impossible.” (…)
The U.S. has a long list of demands with 142 items, which will take some time to discuss “let alone to resolve them and let alone to put them on paper,” the secretary said.
Ross’s comments are a sign of what appears to be a growing appetite in the Trump administration to reach a deal with China to bring an end to the escalation of tit-for-tat tariffs that have unnerved investors and companies around the world. But they also were an acknowledgment of just how hard securing a deal will be.
People familiar with the discussions say the list of potential concessions presented by Chinese negotiators this week didn’t include any major new offers or pledges for action on broader U.S. concerns over Beijing’s industrial policy.
He said, though, that he remained confident that a deal would eventually be made, though big questions remain about when that would happen. (…)
Investors are clearly, justifiably, very worried about the Nov. 20 meeting between Xi and Trump, as are probably every corporate executive in the world. The Brexit mess is pretty minor against the possibility of a major trade war that would impact the whole world. Any agreement to hold fire and keep talking will be welcome. While this seems to me the most likely scenario, eventually leading to a mutual face saving accord, the risks of being wrong are such that it seems best to keep some dry powder for now.
(…) “The circumstances may come where Asean will have to choose one or the other,” Lee said on Thursday night at the close of a regional summit hosted by the 10-member Association of Southeast Asian Nations. “I hope it does not happen soon.” (…)
MAIL ISSUES: Sorry to all my subscribers. The daily mailing is temporarily unavailable. Should be fixed shortly.
(…)and this is rising toward $2bn per day over the coming years, see chart below. And this number could rise further as interest rates go up because of an overheating economy, more Treasury supply, and lack of demand for US fixed income from abroad because of higher hedging costs. (Deutsche Bank via 
