ECONOMIC NEWS: Retail sales fall in August, but bounceback expected

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Retail sales slipped in August and a key gauge of consumer sentiment declined in a mid-September reading, but both developments could be short-lived in a generally strong U.S. economy.

The Commerce Department said Friday that retail sales fell 0.2 percent in August. Motor vehicle sales dropped 1.6 percent, but if that result is excluded, sales were up 0.2 percent for the month.

“With consumer confidence close to record highs and the labor market continuing to improve,” economist Andrew Hunter of Capital Economics told MarketWatch, “we doubt this is the start of a more sustained downturn and [expect] retail spending to bounce back over the coming months.”

The University of Michigan’s Consumer Sentiment Index fell to 95.3 at mid-month from a reading of 96.8 at the end of August, but Richard Curtin, chief economist of the university’s Surveys of Consumers, said the public’s assessment of current conditions improved.

Hurricanes Irma and Harvey “had a greater impact on expected economic conditions,” Curtin said in a statement that accompanied the results. “Across all interviews in early September, 9 percent spontaneously mentioned concerns that Harvey, Irma or both would have a negative impact on the overall economy.”

“Renewed gains in incomes, as well as rising home and equity values, have acted to counterbalance the negative impacts from the hurricanes,” he added. “Given the current resilience of consumers, recent events are unlikely to derail confidence.”

Separately, the Index of Small Business Optimism from the National Federation of Independent Business found that the percentage of owners planning capital spending is at its highest level in 11 years.

“Small firms are now making long-term investments in new machines, equipment, facilities and technology,” NFIB chief economist Bill Dunkelberg said in a statement that accompanied the release of the index, which rose 0.1 points, to a historically high reading of 105.3, for August. “That’s a real sign of strength, and it will be interesting to see if the August result becomes a trend.”

The group’s index generally began to rise after Donald Trump was elected president in November amid expectations for such things as tax cuts and infrastructure improvements.

“This is a sign of economic health that we’ve been expecting, based on the soaring optimism that began last year,” NFIB president and CEO Juanita Duggan said. “Higher optimism resulted first in higher employment activity, and now we’re seeing more small business owners making capital investments.”

Manufacturers in New York state reported strong expansion of business activity in September.

The Federal Reserve Bank of New York said the Empire State Manufacturing Survey had a solid reading for September of 24.2, not far below a 25.2 reading in August that represented a three-year high.

The Fed said the survey’s new orders index rose four points, to 24.9, and the shipments index gained four points, to 16.2. The central bank said that pointed to continuing solid improvement in orders and shipments.

Inflation, however, was also on the rise in August. The U.S. Department of Labor said the Consumer Price Index climbed 0.4 percent, the largest increase since January. Housing and gasoline prices were higher.

Bloomberg said an 0.2 percent increase in core inflation, which excludes food and energy prices, broke a five-month streak in which inflation was weaker than expected, although the core rate was at 1.7 percent for the fourth consecutive month.

“From a bigger-picture perspective, inflation remains relatively subdued,” Jim Baird, chief investment officer at Plante Moran Financial Advisors, told MarketWatch.

The Federal Open Market Committee, the policy-making arm of the Federal Reserve, meets this week, but CNBC reported that the financial markets do not expect the Fed to raise interest rates at the meeting.

The Fed is, however, expected to reduce the $3.7 trillion in Treasuries and mortgage-backed securities it bought during the global financial crisis.

"I do think the Fed has made it clear they're going to start reversing the sign on the balance sheet,” Richard Fisher, former president of the Federal Reserve of Dallas, told CNBC. “It's a very gradual process. They'll probably start in September and they still have room to increase the short rate 25 basis points."

Economy watchers will see a number of housing reports this week. Data on housing starts and building permits for August will be released today by the Commerce Department, and the National Association of Realtors will issue its report on existing-home sales for August on Wednesday.

The Conference Board will release its Leading Economic Index for August on Thursday, which should provide key clues about the course of the economy for the remainder of 2017.


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